cate.QUESTION 2Internal Rate of ReturnBilly Brown, owner of Billy's Ice Cream On-the Go is investigating the purchaseof a new $45,000 delivery truck that would contain specially designed warmingracks. The new truck would have a six-year useful life. It would save $5,400 peryear over the present method of delivering pizzas. In addition, it would result inthe sale of 1,800 more litres of ice cream each year. The company realizes acontribution margin of $2 per litre.Required:(Ignore income taxes.)1. What would be the total annual cash inflows associated with the new truckfor capital budgeting purposes?2. Find the internal rate of return promised by the new truck to the nearestwhole percent point.3. In addition to the data above, assume that due to the unique warmingracks, the truck will have a $13,000 salvage value at the end of six years.Under these conditions, compute the internal rate of return to the nearestwhole percentage point. (Hint: You may find it helpful to use the netpresent value approach; find the discount rate that will cause the netpresent value to be closest to zero. QUESTION 1Net Present Value MethodThe management of Threader Company, a wholesale distributor of crackerproducts, is considering the purchase of a $30,000 machine that would reduceoperating costs in its warehouse by $5,000 per year. At the end of the machine'seight-year useful life, it will have no scrap value. The company's required rate ofreturn is 11%.Required:(Ignore income taxes.)1. Determine the net present value of the investment in the machine.2. What is the difference between the total undiscounted cash inflows andcash outflows over the entire life of the machine?QUESTION 2Internal Rate of ReturnBilly Brown, owner of Billy's Ice Cream On-the Go is investigating the purchaseof a new $45,000 delivery truck that would contain specially designed warmingracks. The new truck would have a six-year useful life. It would save $5,400 peryear over the present method of delivering pizzas. In addition, it would result inthe sale of 1,800 more litres of ice cream each year. The company realizes acontribution margin of $2 per litre.dla) Accessibility: UnavailableFocusE

The internal rate of return is the rate at which the present value of cash inflow is equal to the…

Answered: Billy Brown, owner of Billy's Ice Cream…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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