(Ignore income taxes in this problem.) Bugle's Bagel Bakery is investigating the purchase of a new bagel making machine. This machine would provide an annual operating cost savings of $3,650 for each of the next 4 years. In addition, this new machine would allow the production of one new type of bagel which would result in selling 1,500 dozen more bagels each year. The company earns a contribution margin of $0.90 on each dozen bagels sold. The purchase price of this machine is $13,450 and it will have a 4 year useful life. Bugle's discount rate is 14%.
-The internal rate of return for this investment is closest to:

Question

Quizplus · Accepted Answer

Factor of the internal rate of return = Investment required F1F1F1S1F1F1F10 Annual net cash inflow
= $13,450 F1F1F1S1F1F1F10 $5,000 = 2.69
The factor of 2.69 for 4 years represents an internal rate of return of 18%.

(Ignore Income Taxes in This Problem