Pages

Thursday, 2 August 2012

Scalia's Cleaning Service is investigating the purchase of an ultrasound machine for cleaning window

Scalia's Cleaning Service is investigating the purchase of an ultrasound machine for cleaning window blinds. The machine would cost $136,700, including invoice cost, freight, and training of employees to operate it. Scalia's has estimated that the new machine would increase the company’s cash flows, net of expenses, by $25,000 per year. The machine would have a 14-year useful life with no expected salvage value. (Ignore income taxes.)

Click here to view Exhibit 13B-2, to determine the appropriate discount factor(s) using table.

Required:
1.
Compute the machine’s internal rate of return. (Round discount factor(s) to 3 decimal places and final answer to the closest interest rate. Omit the "%" sign in your response.)

  Internal rate of return 16 correct %  

2.
Compute the machine's net present value. Use a discount rate of 16%. (Leave no cells blank - be certain to enter "0" wherever required. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

  Net present value $ 0 correct  

3.
Suppose that the new machine would increase the company's annual cash flows, net of expenses, by only $20,000 per year. Under these conditions, compute the internal rate of return. (Round discount factor(s) to 3 decimal places and final answer to the closest interest rate. Omit the "%" sign in your response.)

  Internal rate of return 11 correct %  

No comments:

Post a Comment