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Exercise 12-15 (Algo) Internal Rate of Return and Net Present Value [LO12-2, L012-3] Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $163,700, including freight and installation. Henrie's estimated the new machine would increase the company's cash inflows, net of expenses, by $50,000 per year. The machine would have a five-year useful life and no salvage value. Click here to view Exhibit 12B-1 and Exhibit 12B-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 the nearest whole percentage, l.e. 0.123 should be considered as 12%.) 2. Using a discount rate of 16%, 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 $41,000 per year. Under these conditions, what is the internal rate of return? (Round your answer to the nearest whole percentage, le. 0.123 should be considered as 12%.) 1. Internal rate of return 2. Net present value 96 3. Internal rate of return 96

Exercise 12-15 (Algo) Internal Rate of Return and Net Present Value [LO12-2, L012-3] Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $163,700, including freight and installation. Henrie's estimated the new machine would increase the company's cash inflows, net of expenses, by $50,000 per year. The machine would have a five-year useful life and no salvage value. Click here to view Exhibit 12B-1 and Exhibit 12B-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 the nearest whole percentage, l.e. 0.123 should be considered as 12%.) 2. Using a discount rate of 16%, 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 $41,000 per year. Under these conditions, what is the internal rate of return? (Round your answer to the nearest whole percentage, le. 0.123 should be considered as 12%.) 1. Internal rate of return 2. Net present value 96 3. Internal rate of return 96

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 16P
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Exercise 12-15 (Algo) Internal Rate of Return and Net Present Value [LO12-2, L012-3] Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $163,700, including freight and installation. Henrie's estimated the new machine would increase the company's cash inflows, net of expenses, by $50,000 per year. The machine would have a five-year useful life and no salvage value. Click here to view Exhibit 12B-1 and Exhibit 12B-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 the nearest whole percentage, l.e. 0.123 should be considered as 12%.) 2. Using a discount rate of 16%, 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 $41,000 per year. Under these conditions, what is the internal rate of return? (Round your answer to the nearest whole percentage, le. 0.123 should be considered as 12%.) 1. Internal rate of return 2. Net present value 96 3. Internal rate of return 96
Transcribed Image Text:Exercise 12-15 (Algo) Internal Rate of Return and Net Present Value [LO12-2, L012-3] Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $163,700, including freight and installation. Henrie's estimated the new machine would increase the company's cash inflows, net of expenses, by $50,000 per year. The machine would have a five-year useful life and no salvage value. Click here to view Exhibit 12B-1 and Exhibit 12B-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 the nearest whole percentage, l.e. 0.123 should be considered as 12%.) 2. Using a discount rate of 16%, 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 $41,000 per year. Under these conditions, what is the internal rate of return? (Round your answer to the nearest whole percentage, le. 0.123 should be considered as 12%.) 1. Internal rate of return 2. Net present value 96 3. Internal rate of return 96
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