Compute the internal rate of return for each investment

Assignment Help Financial Management

Reference no: EM131928374

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 $27,816.30 and could be used to deliver an additional 45,000 bags of pretzels per year.

Each bag of pretzels can be sold for a contribution margin of $0.38. The delivery truck operating expenses, excluding depreciation, are $0.52 per mile for 15,000 miles per year.

The bagging machine would replace an old bagging machine, and its net investment cost would be $47,385.00. 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 five-year lives. The minimum rate of return is 19%. However, Cousin's 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	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	4.968	4.487	3.837
9	6.802	5.759	5.328	4.772	4.031
10	7.360	6.145	5.650	5.019	4.192

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.

	Delivery Truck	Bagging Machine
Present value factor	_________________	_________________
Internal rate of return	_________________ %	_________________ %

b. The bagging machine rate of return was _________________ than the minimum rate of return requirement of 19% while the delivery truck rate of return was _________________ than the minimum rate of return requirement of 19%. Therefore the recommendation is to invest in the _________________ .

Reference no: EM131928374

Questions Cloud

What might account for the difference : Net income for the year for Carrie, Inc. was $850,000, but the statement of cash flows reports that cash provided. What might account for the difference?

How many printers in total must be sold to break even : Total annual fixed costs are $5,250,000. Assume that sales mix remains the same at all levels of sales. How many printers in total must be sold to break even

Establish a delta-neutral position : If you are short one call option with strike price 51 and maturity 12 months how many shares of stock must you buy to establish a delta-neutral position?

Compute the amount of gain or loss for hudsons pension plan : Compute the amount of the gain or loss for Hudson's pension plan at the beginning of 2016. Assuming that Hudson uses the corridor approach.

Compute the internal rate of return for each investment : Compute the internal rate of return for each investment. Use the above table of present value of an annuity of $1.

What is the npv for project : The required return on these investments is 10 percent. What is the NPV for each project?

Evaluate eds analysis : Evaluate Eds analysis. Does Ed have the right expected NPV? What's wrong with his analysis - Discuss why the firm might consider passing on the proposal

What is the duration of this bond if the ytm : A bond is paying coupon at 9% (annually). It matures in 3 years. The YTM of the bond is 7.9%. calculate the duration of this bond.

How should you take the various factors into account : How should you take the various factors into account as you make investment and savings decisions early in life versus later in life, near retirement?

User Account

All Pages