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Find the internal rate of return promised by the new machine.

Wendell's Donut Shoppe is investigating the purchase of a new $18,600 donut-making machine. The new machine would permit the company to reduce the amount ofpart-time help needed, at a cost savings of $3,800 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting inthe sale of 1,000 dozen more donuts each year. The company realizes a contribution margin of $1.20 per dozen donuts sold. The new machine would have a six-yearuseful life. (Ignore income taxes.)

Find the internal rate of return promised by the new machine.???

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Answer #1

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So Net CF for each of 6 years will be $5000 &Initial Inv is $18600

So IRR = IRR(CFs) = IRR(-18600,5000,5000,5000,5000,5000,5000) =15.64%

answered by: patty moss
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