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% 1 2 3 4 5 6 7 8 9 10 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 Present value factor 0.909 Internal rate of return 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 Delivery Truck 0.833 % 1.528 2.106 2.589 2.991 3.326 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. 3.605 3.837 4.031 4.192 Bagging Machine %
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% 1 2 3 4 5 6 7 8 9 10 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 Present value factor 0.909 Internal rate of return 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 Delivery Truck 0.833 % 1.528 2.106 2.589 2.991 3.326 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. 3.605 3.837 4.031 4.192 Bagging Machine %
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 1cM
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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%
1
2
3
4
5
6
7
8
9
10
0.943
1.833
2.673
3.465
4.212
4.917
5.582
6.210
6.802
7.360
Present value factor
0.909
1.736
2.487
Internal rate of return
3.170
3.791
4.355
4.868
5.335
5.759
6.145
0.893
1.690
2.402
3.037
3.605
4.111
4.564
4.968
5.328
5.650
0.870
1.626
2.283
2.855
3.353
3.785
4.160
4.487
4.772
5.019
Delivery Truck
0.833
1.528
%
2.106
2.589
2.991
3.326
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.
3.605
3.837
4.031
4.192
Bagging Machine
%
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