1.Pisa Pizza Parlor is investigating the purchase of a new $45,000 delivery truck that would contain

specially designed warming racks. The new truck would have a six-year useful life. It would save $5,400

per year over the present method of delivering pizzas. In addition, it would result in the sale of 1,800

more pizzas each year. The company realizes a contribution margin of $2 per pizza.

Required:

(Ignore income taxes.)

(1).What would be the total annual cash inflows associated with the new truck for capital budgeting

purposes?

(2).Find the internal rate of return promised by the new truck to the nearest whole percent.

(3).In addition to the data already provided, assume that due to the unique warming racks, the

truck will have a $13,000 salvage value at the end of six years. Under these conditions, compute

the internal rate of return to the nearest whole percent.

2.Union Bay Plastics is investigating the purchase of automated

equipment that would save $100,000 each year in direct labor and inventory carrying

costs. This equipment costs $750,000 and is expected to have a 10-year

useful lift with no salvage value. The company's required rate of

return is 15% on all equipment purchases. This equipment would provide

intangible benefits such as greater flexibility and higher-quality output

that are difficult to estimate and yet are quite significant.

Required:

(Ignore income taxes)

What dollar value per year would the intangible benefits have to

have in order to make the equipment an acceptable investment?

3.