Cousins Salted Snack Company is considering two possible investments: a delivery truck or a bagging machine. The delivery truck would cost $39,287 and could be

Question

47 users unlocked this solution today!

Cousin’s Salted Snack Company is considering two possible investments: a delivery truck or a bagging machine. The delivery truck would cost $39,287 and could be used to deliver an additional 48,200 bags of taquitos chips per year. Each bag of chips can be sold for a contribution margin of $0.42. The delivery truck operating expenses, excluding depreciation, are $0.60 per mile for 18,000 miles per year. The bagging machine would replace an old bagging machine, and its net investment cost would be $65,718. 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 seven-year lives. The minimum rate of return is 13%. However, Cousin’s has funds to invest in only one of the projects.
(a) Compute the internal rate of return for each investment. Use the table of present values of an annuity of $1 in the chapter.
(b) Provide a memo to management with a recommendation.