Question

Exercise 12-15 Internal Rate of Return and Net Present Value [LO12-2, LO12-3) Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $125,080, 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 12B-1 and Exhibit 12B-2. to determine the appropriate discount factors) using table. Required: 1. What is the machine's internal rate of return? (Round your answer to whole decimal place le. 0.123 should be considered as 12%. 2. Using a discount rate of 18%, what is the machine's net present value? 3. Suppose the new machine would increase the company's annual cash inflows, net of expenses, by only $34.700 per year. Under these conditions, what is the internal rate of return? (Round your answer to whole decimal place le. 0.123 should be considered as 12%.) Internal rate of retum Net present value interns rate of return

Answer 1

Mpy = Discounted Inflow ☺ Initial Inver for 10% & 108514 & 131791 Mpy For 187 Discouled Inflow Initial Invertrat уру 1125080 2 - al 16566) 671 CHR -LR) IRR = Lt Mpy at 4 - Npv at L, - Novatle Where HR = 18% LR = 107 Npv at L, = 6711. Npv at L = (16566) IRR = 10+ 6711 (18-10) 6711-(-16566) = 10+ 671 (8) 23277 - 10+0.288)8 = 1072-31 = 12:31 con ldy. = 12% IRR