Question

nemal te of tum Method-Two Projects Munch Crunch Sack Company is considering two possible investments delivery truck or a begging machine. The delivery truck would cost $39,987.52 and could be used to deliver an additional 48,000 bags of pretzels per year Each bag of pretzels can be sold for a contribution margin of $0.38. The delivery truck operating expenses, excluding depreciation, are $0.52 per mile for 16,000 miles per year. The bagging machine would replace an old bagging machine and its net investment cost would be $76,522.5. The new machine would require three fewer hours of direct labor per day. Direct laboris $15 per hour. There are 250 operating days in the year. Both the truck and the bagging machine are estimated to have nine-year lives. The minimum rate of return is 19. However, Munch N' Crunch has funds to invest in only one of the projects Present Value of an Annuity of $1 at Compound Interest Year 10 12 14 209 0.943 0.833 0.909 1.736 2.487 3.170 2.673 0.893 1.690 2.402 3.037 3.605 0.870 1625 2.283 2,106 2.993 4.111 4564 3.505 5210 5.2 4772 4031 5.145 5. 5519 of annuty . If required, round your present value factor answers to three decimal places 2. Compute the internal rate of return for each investment. Use the above table of presenta and internal rate of return to the nearest percent Delivery Truck Bagging Machine Present value factor Tremal rate of return b. The ba r anthemum frum ent of the delivery truck refe r ater than tha t of

Answer 1

	Delivery Truck	Bagging Machine
Present value factor	4.031	6.802
Internal rate of return	20%	6%
Workings:
Annual cash flows:
Delivery Truck	9920	=(48000*0.38)-(16000*0.52)
Bagging Machine	11250	=3*15*250
	Delivery Truck	Bagging Machine
Present value factor	=39987.52/9920	=76522.5/11250