Pisa pizza parlor is investigating the purchase of a new

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Reference no: EM13609111

Pisa Pizza Parlor is investigating the purchase of a new $50,000 delivery truck that would contain specially designed warming racks. The new truck would have a six-year useful life. It would save $6,800 per year over the present method of delivering pizzas. In addition, it would result in the sale of 1,700 more pizzas each year. The company realizes a contribution margin of $2 per pizza. (Ignore income taxes.)

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 truck for capital budgeting purposes? (Omit the "tiny_mce_markerquot; sign in your response.)

Total annual cash inflows $-----------

2.Find the internal rate of return promised by the new truck. (Round discount factor(s) to 3 decimal places and final answer to the closest interest rate. Omit the "%" sign in your response.)

Internal rate of return-----------%

3. In addition to the data already provided, assume that due to the unique warming racks, the truck will have a $17,000 salvage value at the end of six years. Under these conditions, compute the internal rate of return. (Round discount factor(s) to 3 decimalplaces and final answer to the closest interest rate. Omit the "%" sign in your response.)

Reference no: EM13609111

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