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 b. The bagging machine rate of return was less than the minimum rate of return requirement of 13 % while the delivery truck rate of return was greater than the minimum rate of return requirement of 13%. Therefore the recommendation is to invest in the delivery truck
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 b. The bagging machine rate of return was less than the minimum rate of return requirement of 13 % while the delivery truck rate of return was greater than the minimum rate of return requirement of 13%. Therefore the recommendation is to invest in the delivery truck
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:Munch N' Crunch Snack Company is considering two possible investments: a delivery truck or a bagging machine. The delivery truck would cost $43,056 and
could be used to deliver an additional 95,000 bags of pretzels per year. Each bag of pretzels can be sold for a contribution margin of $0.45. The delivery truck
operating expenses, excluding depreciation, are $1.35 per mile for 24,000 miles per year. The bagging machine would replace an old bagging machine, and its
net investment cost would be $61,614. The new machine would require three fewer hours of direct labor per day. Direct labor is $18 per hour. There are 250
operating days in the year. Both the truck and the bagging machine are estimated to have 7-year lives. The minimum rate of return is 13%. 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%
0.943
0.909
0.893
0.870
0.833
1.833 1.736
1.690
1.626
1.528
2.673
2.487
2.402
2.283
2.106
3.465
3.170
3.037
2.855
2.589
4.212
3.791 3.605 3.353
2.991
4.917
4.355
4.111
3.785 3.326
5.582
4.868
4.564
3.605
6.210
5.335
4.968 4.487
3.837
6.802
5.759
5.328 4.772 4.031
7.360 6.145
5.650 5.019 4.192
1
2
3
4
5
6
7
8
9
10
4.160
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
b. The bagging machine rate of return was less than the minimum rate of return requirement of 13% while the delivery truck rate of return was
greater than the minimum rate of return requirement of 13%. Therefore the recommendation is to invest in the delivery truck ✓
%
%
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