internal Rate of Return Method—Two Projects
Munch N’ Crunch Snack Company is considering two possible investments: a delivery truck or a bagging machine. The delivery truck would cost $33,887.7 and could be used to deliver an additional 49,000 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 17,000 miles per year. The bagging machine would replace an old bagging machine, and its net investment cost would be $35,662.5. The new machine would require three fewer hours of direct labor per day. Direct labor is $15 per hour. There are 250 operating days in the year. Both the truck and the bagging machine are estimated to have four-year lives. The minimum rate of return is 9%. 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 | 6% | 10% | 12% | 15% | 20% |
1 | 0.943 | 0.909 | 0.893 | 0.870 | 0.833 |
2 | 1.833 | 1.736 | 1.690 | 1.626 | 1.528 |
3 | 2.673 | 2.487 | 2.402 | 2.283 | 2.106 |
4 | 3.465 | 3.170 | 3.037 | 2.855 | 2.589 |
5 | 4.212 | 3.791 | 3.605 | 3.352 | 2.991 |
6 | 4.917 | 4.355 | 4.111 | 3.784 | 3.326 |
7 | 5.582 | 4.868 | 4.564 | 4.160 | 3.605 |
8 | 6.210 | 5.335 | 4.968 | 4.487 | 3.837 |
9 | 6.802 | 5.759 | 5.328 | 4.772 | 4.031 |
10 | 7.360 | 6.145 | 5.650 | 5.019 | 4.192 |
a. Compute the internal rate of return for each investment. Use the above table of present value of an annuity of $1. If required, round your present value factor answers to three decimal places and internal rate of return to the nearest percent.
Delivery Truck | Bagging Machine | |
Present value factor | ||
Internal rate of return | % | % |
a | ||
Delivery Truck | Bagging Machine | |
Present value factor | 3.465 | 3.170 |
Internal rate of return | 6% | 10% |
Workings: | ||
Annual cash flows: | ||
Delivery Truck | 9780 | =(49000*0.38)-(17000*0.52) |
Bagging Machine | 11250 | =3*15*250 |
Delivery Truck | Bagging Machine | |
Present value factor | =33887.7/9780 | =35662.5/11250 |
internal Rate of Return Method—Two Projects Munch N’ Crunch Snack Company is considering two possible investments: a del...
Internal Rate of Return Method—Two Projects Munch N’ Crunch Snack Company is considering two possible investments: a delivery truck or a bagging machine. The delivery truck would cost $47,609.04 and could be used to deliver an additional 49,000 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 17,000 miles per year. The bagging machine would replace an old bagging...
Internal Rate of Return Method—Two Projects Munch N’ Crunch Snack Company is considering two possible investments: a delivery truck or a bagging machine. The delivery truck would cost $44,209.44 and could be used to deliver an additional 40,000 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 14,000 miles per year. The bagging machine would replace an old bagging...
Internal Rate of Return Method—Two Projects Munch N’ Crunch Snack Company is considering two possible investments: a delivery truck or a bagging machine. The delivery truck would cost $32,767.98 and could be used to deliver an additional 43,000 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 15,000 miles per year. The bagging machine would replace an old bagging...
eBook Calculator Internal Rate of Return Method -Two Projects Munch N' Crunch Snack Company is considering two possible investments: a delivery truck or a bagging machine. The delivery truck would cost $20,504.88 and could be used to deliver an additional 10,000 bags of pretzels per year. Each bag of pretres can be sold for a contribution margin of $0.38. The delivery truck operating expenses, excluding depreciation, are $0.52 per mile for 14,000 miles per year. The bagging machine would replace...
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...
Internal Rate of Return Method—Two Projects Cousin's Salted Snack Company is considering two possible investments: a delivery truck or a bagging machine. The delivery truck would cost $90,790.20 and could be used to deliver an additional 47,000 bags of taquitos chips per year. Each bag of chips can be sold for a contribution margin of $0.58. The delivery truck operating expenses, excluding depreciation, are $0.79 per mile for 16,000 miles per year. The bagging machine would replace an old bagging...
a. Compute the internal rate of return for each investment. Use the above table of present value of an annuity of $1. If required, round your present value factor answers to three decimal places and internal rate of return to the nearest percent. Delivery Truck Bagging Machine Present value factor Internal rate of return % % Munch N' Crunch Snack Company is considering two possible investments: a delivery truck or a bagging machine. The delivery truck would cost...
Net Present Value Method and Present Value Index Diamond and Turf Inc. is considering an investment in one of two machines. The sewing machine will increase productivity from sewing 170 baseballs per hour to sewing 306 per hour. The contribution margin per unit is $0.44 per baseball. Assume that any increased production of baseballs can be sold. The second machine is an automatic packing machine for the golf ball line. The packing machine will reduce packing labor cost. The labor...
EX 25-18 Internal rate of return method—two projects Toasted Treats Snack Company is considering two possible investments: a delivery truck or a bagging machine. The delivery truck would cost $44,271 and could be used to deliver an additional 61,000 bags of pretzels per year. Each bag of pretzels can be sold for a contribution margin of $0.40. The delivery truck operating expenses, excluding depreciation, are $0.70 per mile for 21,000 miles per year. The bagging machine would replace an old...
Internal Rate of Return Method The internal rate of return method is used by King Bros. Construction Co. in analyzing a capital expenditure proposal that involves an investment of $53,443 and annual net cash flows of $13,000 for each of the six years of its useful life. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0 1 2 0.870 1.626 2.283 2.855 3.352 0.833 1.528 2.106 2.589 0.943 1.833 2.673 3.465 4.212...