Scalia\'s Cleaning Service is investigating the purchase of an ultrasound machin
ID: 2418054 • Letter: S
Question
Scalia's Cleaning Service is investigating the purchase of an ultrasound machine for cleaning window blinds. The machine would cost $104,320, 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 $20,000 per year. The machine would have a 10-year useful life with no expected salvage value. (Ignore income taxes.) Click here to view Exhibit 13B-2, to determine the appropriate discount factor(s) using table. Compute the machine s internal rate of return. (Round discount factor(s) to 3 decimal places and final answer to the closest interest rate. Omit the "%" sign in your response.) Compute the machine's net present value. Use a discount rate of 14%. (Leave no cells blank - be certain to enter "0" wherever required. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.) Suppose that the new machine would increase the company's annual cash flows, net of expenses, by only $14,000 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.)Explanation / Answer
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Discount rate at 14%
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periods Cash flow PV Factor at 12% 0 -104320 1 -104320 1-10 years 20000 5.6502 113004.5 NPV 8684.461 periods Cash flow PV Factor at 15% 0 0 -104320 1 -104320 1-10 years 20000 5.0188 100375.4 NPV -3944.63