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Broward College l Browa (E) Homepage-BCOnline x , CengageNow I Onkne- . New Tab x COsjc.cengagenow.com/ilm eAssignmentMain.do?takeAssignmentSessionLocator assignment-take eBook 8. 9. 10. Internal Rate of Return Method -Two Projects Cousin's Salted Snack Company is considering two possible investments: a delivery truck or a bagging machine. The delivery truck would cost $88,977.08 and could be used to deliver an additional 52,000 bags of pretzels per year. Each bag of pretzels can be sold for a contribution margin of $0.58. The delivery truck operating expenses, excluding depreciation, are $0.79 per mile for 18,000 miles per year. The bagging machine would replace an old bagging machine, and its net investment cost would be $54,765.00. The new machine would require three fewer hours of direct labor per day, Direct labor is $15 per hour. There are 250 operating days in the year. Both the truck and the bagging machine are estimated to have seven-year lives. The minimum rate of return is 9%. However, Cousin's has funds to invest in only one of the projects. O Present Value of an Annuity of $1 at Compound Interest Year 10% 12% 15% 6% 0.943 0.909 0,893 1.833 .736 1.6 2.673 2.487 2.402 2.28 3.465 3.170 3.037 2.855 2.589 4.212 3.7913.605 3.352 2.991 4.9174.355 4.111 3.7843.326 5.582 4.868 4.564 4.160 3.605 6.210 5.335 4.968 4.4873.837 6.802 5.759 5.328 4.772 4.031 7.360 6.145 5.650 5.0194.192 20% 0.870 0.833 690 1.626 528 3 2.106 10 a compute he internal rate of return or each investment. Use the above table of and internal rate of return to the nearest percent. resent value ofa annuit of 1. required round your present value actor answers to three decimal places Delivery Truck Bagging Machine Present value factor Internal rate of return b. The bagging machine rate of return was select than the minimum rate of return requirement of 9% while the delivery truck rate of return was | select than the minimum rate of return requirement of 9%. Therefore the recommendation is to invest in the Select 7:27 PM O Type here to search 12/7/2017

Explanation / Answer

Annual cash flows Delivery truck=(52000*0.58)-(18000*0.79)= 15940 Annual cash flows bagging machine = 3*15*250= 11250 Delivery truck Bagging machine Present value factor 5.582 4.868 Internal rate of return 6% 10%

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