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

See similar textbooks

Similar questions

Westland Manufacturing spends $20,000 to update the lighting in its factory to more energy-efficient LED fixtures. This will save the company $4,000 per year in electricity costs. The company estimates that these fixtures will last for 10 years. What is the IRR of this project?
The Sweetwater Candy Company would like to buy a new machine that would automatically "dip" chocolates. The dipping operation currently is done largely by hand. The machine the company is considering costs $230,000. The manufacturer estimates that the machine would be usable for five years but would require the replacement of several key parts at the end of the third year. These parts would cost $10,400, including installation. After five years, the machine could be sold for $7,500. The company estimates that the cost to operate the machine will be $8,400 per year. The present method of dipping chocolates costs $44,000 per year. In addition to reducing costs, the new machine will increase production by 6,000 boxes of chocolates per year. The company realizes a contribution margin of $1.55 per box. A 13% rate of return is required on all investments. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. (Use the tables to get…
Wendell’s Donut Shoppe is investigating the purchase of a new $34,600 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $6,500 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 2,500 dozen more donuts each year. The company realizes a contribution margin of $1.60 per dozen donuts sold. The new machine would have a six-year useful life. REQUIRED" . What is the new machine’s internal rate of return? (Round your final answer to the nearest whole percentage.) 4. In addition to the data given previously, assume that the machine will have a $13,755 salvage value at the end of six years. Under these conditions, what is the internal rate of return? (Hint: You may find it helpful to use the net present value approach; find the discount rate that will cause the net present value to be closest to zero.)
Beryl's Iced Tea currently rents a bottling machine for $50,000 per year, including all maintenance expenses. It is considering purchasing a machine instead and is comparing two options: a. Purchase the machine it is currently renting for $155,000. This machine will require $23,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $260,000. This machine will require $17,000 per year in ongoing maintenance expenses and will lower bottling costs by $14,000 per year. Also, $36,000 will be spent up front to train the new operators of the machine. Suppose the appropriate discount rate is 9% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the cost of the rental machine. Assume also that the machines will be depreciated via the straight-line method over seven years and that they have a 10-year life with a negligible salvage value. The marginal corporate tax rate is 20%. Should Beryl's Iced…
The Sweetwater Candy Company would like to buy a new machine that would automatically "dip" chocolates. The dipping operation is currently done largely by hand. The machine the company is considering costs $240,000. The manufacturer estimates that the machine would be usable for five years but would require the replacement of several key parts at the end of the third year. These parts would cost $11,600, including installation. After five years, the machine could be sold for $5,000. The company estimates that the cost to operate the machine will be $9,600 per year. The present method of dipping chocolates costs $56,000 per year. In addition to reducing costs, the new machine will increase production by 3,000 boxes of chocolates per year. The company realizes a contribution margin of $1.80 per box. A 13% rate of return is required on all investments. Use Excel or spreadsheet to solve. Round answers to the nearest dollar. Required: 1. What are the annual net cash inflows that will be…
Big Rock Brewery currently rents a bottling machine for $55,000 per year, including all maintenance expenses. The company is considering purchasing a machine instead and is comparing two options: a. Purchase the machine it is currently renting for $165,000. This machine will require $20,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $260,000. This machine will require $16,000 per year in ongoing maintenance expenses and will lower bottling costs by $11,000 per year. Also, $39,000 will be spent upfront in training the new operators of the machine. Suppose the appropriate discount rate is 9% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the rental of the machine. Assume also that the machines are subject to a CCA rate of 45% and there will be a negligible salvage value in ten year's time (the end of each machine's life). The marginal corporate tax rate is 35%. Should Big Rock…
A machine costs $250,000 to purchase and will provide $60,000 a year in benefits. The company plans to use the machine for 12 years and then will sell the machine for scrap, receiving $15,000. The company interest rate is 10%. Should the machine be purchased? 5-4 A IBP Inc. is considering establishing a new machine to automate a meatpacking process. The machine will save $55,000 in labor annually. The machine can be purchased for $225,000 today and will be used for 10 years. It has a salvage value of $12,500 at the end of its useful life. The new machine will require an annual maintenance cost of $11,000. The corporation has a minimum rate of return of 9%. Do you recommend automating the process?
Sd
Emperor's Clothes Fashions can invest $5 million in a new plant for producing invisible makeup. The plant has an expected life of 5 years, and expected sales are 6 million jars of makeup a year. Fixed costs are $3.8 million a year, and variable costs are $2.50 per jar. The product will be priced at $3.90 per jar. The plant will be depreciated straight-line over 5 years to a salvage value of zero. The opportunity cost of capital is 10%, and the tax rate is 30%. a. What is project NPV under these base-case assumptions? Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places. b. What is NPV if variable costs turn out to be $2.80 per jar? Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places. c. What is NPV if fixed costs turn out to be $3.3 million per year? Note: Do not round intermediate calculations. Enter your answer in millions, rounded to 2 decimal places. d. At what price per jar…

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS