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Billy Brown, owner of Billy's Ice Cream On - the - Go , is investigating purchasing a new delivery van that would contain a custom
Billy Brown, owner of Billy's Ice Cream OntheGo is investigating purchasing a new delivery van that would contain a
custombuilt refrigeration unit. The van would cost $ have an eightyear useful life, and generate cost savings of
$ per year compared to the van currently being used. Also, Billy estimates the new van would result in the sale of
more litres of ice cream each year, which has a contribution margin of $ per litre. Ignore income taxes.
Required:
What would be the total annual cash inflows associated with the new van for capital budgeting purposes?
Total annual cash inflows
Calculate the IRR promised by the new van. Hint Use Microsoft Excel to calculate the discount factorsDo not round
intermediate calculations and round your final answer to one decimal place.
Internal rate of return
Assume that in addition to the cash flows described above, the van will have a $ salvage value at the end of eight
years. Calculate the IRR. Hint Use Microsoft Excel to calculate the discount factorsDo not round intermediate
calculations and round your final answer to one decimal place.
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