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In: Accounting
Exercise 13-15 Internal Rate of Return and Net Present Value [LO13-2, LO13-3] Henrie’s Drapery Service is...
Exercise 13-15 Internal Rate of Return and Net Present Value [LO13-2, LO13-3]
Henrie’s Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $137,320, including freight and installation. Henrie’s estimated the new machine would increase the company’s cash inflows, net of expenses, by $40,000 per year. The machine would have a five-year useful life and no salvage value.
Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using table.
Required:
1. What is the machine’s internal rate of return? (Round your answer to whole decimal place i.e. 0.123 should be considered as 12%.)
2. Using a discount rate of 14%, what is the machine’s net present value? Interpret your results.
3. Suppose the new machine would increase the company’s annual cash inflows, net of expenses, by only $37,150 per year. Under these conditions, what is the internal rate of return? (Round your answer to whole decimal place i.e. 0.123 should be considered as 12%.)
Solutions
ekkarill92 answered 1 year agoRelated Solutions
Exercise 13-9 Net Present Value Analysis and Simple Rate of Return [LO13-2, LO13-6] Derrick Iverson is...
Exercise 13-9 Net Present Value Analysis and Simple Rate of
Return [LO13-2, LO13-6]
Derrick Iverson is a divisional manager for Holston Company. His
annual pay raises are largely determined by his division’s return
on investment (ROI), which has been above 20% each of the last
three years. Derrick is considering a capital budgeting project
that would require a $4,480,000 investment in equipment with a
useful life of five years and no salvage value. Holston Company’s
discount rate is 18%. The...
Exercise 13-3 Internal Rate of Return [LO13-3] Wendell’s Donut Shoppe is investigating the purchase of a...
Exercise 13-3 Internal Rate of Return [LO13-3]
Wendell’s Donut Shoppe is investigating the purchase of a new
$31,300 donut-making machine. The new machine would permit the
company to reduce the amount of part-time help needed, at a cost
savings of $5,300 per year. In addition, the new machine would
allow the company to produce one new style of donut, resulting in
the sale of 1,300 dozen more donuts each year. The company realizes
a contribution margin of $3.00 per dozen...
Problem 13-24 Simple Rate of Return; Payback Period; Internal Rate of Return [LO13-1, LO13-3, LO13-6] The...
Problem 13-24 Simple Rate of Return; Payback Period; Internal
Rate of Return [LO13-1, LO13-3, LO13-6]
The Elberta Fruit Farm of Ontario always has hired transient
workers to pick its annual cherry crop. Janessa Wright, the farm
manager, just received information on a cherry picking machine that
is being purchased by many fruit farms. The machine is a motorized
device that shakes the cherry tree, causing the cherries to fall
onto plastic tarps that funnel the cherries into bins. Ms. Wright...
Problem 13-24 Simple Rate of Return; Payback Period; Internal Rate of Return [LO13-1, LO13-3, LO13-6] The...
Problem 13-24 Simple Rate of Return; Payback Period; Internal
Rate of Return [LO13-1, LO13-3, LO13-6]
The Elberta Fruit Farm of Ontario always has hired transient
workers to pick its annual cherry crop. Janessa Wright, the farm
manager, just received information on a cherry picking machine that
is being purchased by many fruit farms. The machine is a motorized
device that shakes the cherry tree, causing the cherries to fall
onto plastic tarps that funnel the cherries into bins. Ms. Wright...
Problem 13-24 Simple Rate of Return; Payback Period; Internal Rate of Return [LO13-1, LO13-3, LO13-6] The...
Problem 13-24 Simple Rate of Return; Payback Period; Internal
Rate of Return [LO13-1, LO13-3, LO13-6]
The Elberta Fruit Farm of Ontario always has hired transient
workers to pick its annual cherry crop. Janessa Wright, the farm
manager, just received information on a cherry picking machine that
is being purchased by many fruit farms. The machine is a motorized
device that shakes the cherry tree, causing the cherries to fall
onto plastic tarps that funnel the cherries into bins. Ms. Wright...
Internal rate of return and net present value are related in that: Internal rate of return...
Internal rate of return and net present value are related in
that:
Internal rate of return formed the basis for the eventual
development of the net present value theory.
Internal rate of return finds a discount rate that produces a
net present value of zero.
Net present value formed the basis for the eventual development
of the internal rate of return theory.
Net present value can only be used to evaluate irregular cash
flows, whereas internal rate of return can...
Problem 13-24 (REV) Simple Rate of Return; Payback Period; Internal Rate of Return [LO13-1, LO13-3, LO13-6]...
Problem 13-24 (REV) Simple Rate of Return; Payback Period;
Internal Rate of Return [LO13-1, LO13-3, LO13-6]
The Elberta Fruit Farm of Ontario always has hired transient
workers to pick its annual cherry crop. Janessa Wright, the farm
manager, just received information on a cherry picking machine that
is being purchased by many fruit farms. The machine is a motorized
device that shakes the cherry tree, causing the cherries to fall
onto plastic tarps that funnel the cherries into bins. Ms....
Net Present Value Method, Internal Rate of Return Method, and Analysis for a Service Company The...
Net Present Value Method, Internal Rate of Return Method, and
Analysis for a Service Company
The management of Advanced Alternative Power Inc. is considering
two capital investment projects. The estimated net cash flows from
each project are as follows:
Year
Wind
Turbines
Biofuel Equipment
1
$180,000
$360,000
2
180,000
360,000
3
180,000
360,000
4
180,000
360,000
The wind turbines require an investment of $466,020, while the
biofuel equipment requires an investment of $1,027,800. No residual
value is expected from either...
Net Present Value Method, Internal Rate of Return Method, and Analysis for a Service Company The...
Net Present Value Method, Internal Rate of Return Method, and
Analysis for a Service Company
The management of Advanced Alternative Power Inc. is considering
two capital investment projects. The estimated net cash flows from
each project are as follows:
Year
Wind
Turbines
Biofuel Equipment
1
$390,000
$740,000
2
390,000
740,000
3
390,000
740,000
4
390,000
740,000
The wind turbines require an investment of $1,184,430, while the
biofuel equipment requires an investment of $2,112,700. No residual
value is expected from either...
Net Present Value Method, Internal Rate of Return Method, and Analysis for a Service Company The...
Net Present Value Method, Internal Rate of Return Method, and
Analysis for a Service Company
The management of Advanced Alternative Power Inc. is considering
two capital investment projects. The estimated net cash flows from
each project are as follows:
Year
Wind
Turbines
Biofuel Equipment
1
$390,000
$740,000
2
390,000
740,000
3
390,000
740,000
4
390,000
740,000
The wind turbines require an investment of $1,184,430, while the
biofuel equipment requires an investment of $2,112,700. No residual
value is expected from either...
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