### Internal Rate of Return Method—Two Projects**Scenario:**Munch N’ Crunch Snack Company is evaluating two potential investments: a delivery truck and a bagging machine. Here are the specific details for each option:- **Delivery Truck**: - Cost: $54,940.86 - Additional output: 47,000 bags of pretzels annually - Contribution margin per bag: $0.38 - Operating expenses (excluding depreciation): $0.52 per mile for 16,000 miles per year- **Bagging Machine**: - Replacement of an old bagging machine - Net investment cost: $39,960 - Reduced direct labor: three fewer hours per day - Direct Labor Cost: $10 per hourThere are 250 operating days per year. Both the truck and the bagging machine are estimated to have nine-year lifespans. The company’s minimum rate of return is 11%, and it has funds to invest in only one of the projects.**Table: 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

Answered: Image /qna-images/answer/399c6dbe-3974-4512-a75f-e03bf0b1edc4.jpg

Munch N' Crunch Snack Company is considering two possible investments: a delivery truck or a bagging machine. The delivery truck would cost $54,940.86 and could be used to deliver an additional 47,000 bags of pretzels per year. Each bag of pretzels can be sold for a contribution margin of $0.38. The delivery truck operating expenses,

Munch N' Crunch Snack Company is considering two possible investments: a delivery truck or a bagging machine. The delivery truck would cost $54,940.86 and could be used to deliver an additional 47,000 bags of pretzels per year. Each bag of pretzels can be sold for a contribution margin of $0.38. The delivery truck operating expenses,

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

Charlie Corporation is considering buying a new donut maker. This machine will replace an old donut maker that still has a useful life of 6 years. The new machine will cost $3,770 a year to operate, as opposed to the old machine, which costs $4,225 per year to operate. Also, because of increased capacity, an additional 21,700 donuts a year can be produced. The company makes a contribution margin of $0.10 per donut. The old machine can be sold for $8,700 and the new machine costs $31,700. The incremental annual net cash inflows provided by the new machine would be (Ignore income taxes.): Multiple Choice O O O O $455 $2,170 $6,530 $2,625
es Wendell's Donut Shoppe is investigating the purchase of a new $48,300 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $6,800 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 1,700 dozen more donuts each year. The company realizes a contribution margin of $2.00 per dozen donuts sold. The new machine would have a six-year useful life. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What would be the total annual cash inflows associated with the new machine for capital budgeting purposes? 2. What discount factor should be used to compute the new machine's internal rate of return? (Round your answers to 3 decimal places.) 3. What is the new machine's internal rate of return? (Round your final answer to the nearest whole percentage.) 4. In addition to the…
Raghubhai
Vijay
Wendell's Donut Shoppe is investigating the purchase of a new $50,100 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $5,900 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 2,600 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: 1. What would be the total annual cash inflows associated with the new machine for capital budgeting purposes? 2. What is the new machine's internal rate of return? Note: Round your final answer to the nearest whole percentage. 3. In addition to the data given previously, assume that the machine will have a $17,225 salvage value at the end of six years. Under these conditions, what is the internal rate of return? Note: Round your final answer to the nearest whole percentage. 1. Annual cash…
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.
The Elite Car Rental Corporation is contemplating expanding its short-term rental fleet by 30 automobiles at a cost of $900,000. It expects to keep the autos for only two years and to sell them at the end of that period for 60 percent, on average, of what they cost. The plan is to generate $21,000 of incremental revenue per additional auto in each year of operation. The controller estimates that other costs will amount to 20 cents per kilometre on an average of 40,000 kilometres per car per year. She also estimates that the new business will require an investment of $10,000 in additional working capital. The firm is in a 30 percent tax bracket and uses 12 percent as a cost of capital a. Calculate the NPV (Do not round the intermediate calculations. Round the final answer to the nearest whole dollar. Negative answer should be indicated by a minus sign. Omit $ sign in your response.) b. Should Elite purchase the automobiles? O a. a)NPV = $82,286 ± 0.1% and b)NO O b. a)NPV = -$72,386 ±…
Wendell’s Donut Shoppe is investigating the purchase of a new $42,800 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $5,700 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 $1.50 per dozen donuts sold. The new machine would have a six-year useful life. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What would be the total annual cash inflows associated with the new machine for capital budgeting purposes? 2. What discount factor should be used to compute the new machine’s internal rate of return? (Round your answers to 3 decimal places.) 3. What is the new machine’s internal rate of return? (Round your final answer to nearest whole percentage.) 4. In addition to the…
Fantastic Footwear can invest in one of two different automated clicker cutters. The first, A, has a $150,000 first cost. A similar one with many extra features, B has a $579,000 first cost. A will save $50,000 per year over the cutter currently in use. B will save $160,000 per year. Each clicker cutter will last five years. If the MARR is 8 percent, which alternative is better? Use an IBB comparison should be chosen percent. For the increment from cutter A to cutter B, the IRR is percent. Therefore, For the increment from the do-nothing alternative to cutter A. the IRR is (Type integers or decimals rounded to one decimal place as needed.)
New Tech Corporation is a rapidly growing biotech company that has a required rate of return of 10%. It plans to build a new facility in Santa Clara County. The building will take 2 years to complete. The building contractor offered. New Tech a choice of three payment plans, as follows:.1. Using the net present value method, calculate the comparative cost of each of the three payment plans being considered by New Tech.(Round your final answers to the nearest whole dollar.) The net present value cost of Plan I is .The net present value cost of Plan II isThe net present value cost of Plan III is 2. Which payment plan should New Tech choose? Explain. 3. Discuss the financial factors, other than the cost of the plan, and the nonfinancial factors that should be considered in selecting an appropriate payment plan More info • Plan I: Payment of $225,000 at the time of signing the contract and $4,800,000 upon completion of the building. The end of the second year is the completion…
Oregon Equipment Company wants to develop a new log-splitting machine for rural homeowners. Market research has determined that the company could sell 6,000 log-splitting machines per year at a retail price of $700 each. An independent catalog company would handle sales for an annual fee of $2,000 plus $50 per unit sold. The cost of the raw materials required to produce the log-splitting machines amounts to $80 per unit. If company management desires a return equal to 10 percent of the final selling price, what is the target conversion and administrative cost per unit? Round answer to the nearest cent.
The Elite Car Rental Corporation is contemplating expanding its short-term rental fleet by 30 automobiles at a cost of $900,000. It expects to keep the autos for only two years and to sell them at the end of that period for 60 percent, on average, of what they cost. The plan is to generate $21,000 of incremental revenue per additional auto in each year of operation. The controller estimates that other costs will amount to 20 cents per kilometre on an average of 40,000 kilometres per car per year. She also estimates that the new business will require an investment of $10,000 in additional working capital. The firm is in a 30 percent tax bracket and uses 12 percent as a cost of capital. a. Calculate the NPV. (Do not round the intermediate calculations. Round the final answer to the nearest whole dollar. Negative answer should be indicated by a minus sign. Omit $ sign in your response.) NPV $204286 ง b. Should Elite purchase the automobiles? Yes No