Capital Decision Making

Big Al gives his worker's a one hour lunch and two fifteen minute breaks each day. He believes that a

cold soda machine would be appreciated by his workers, and an appreciated worker is a good worker.

He has priced a machine at a national member only warehouse for $$2,050.$ The machine should be

usable for $3$ years, after which it would be inefficient, obsolete and would have to be disposed of at the

dump. Big Al believes that $14$ cans a day will be purchased. The plant is open five days a week, $50$

weeks per year. A case of soda $(24$ cans$)$ costs $$5\mathrm{.}76$ and Big Al believes that a price of $$\mathrm{.}55$ per

can would win him good will.

What is the estimated annual sales in cans of soda?

What is the contribution margin per can of soda? $($rounded to two places, $#$.$##$)$

How many cans of soda must be sold each year to breakeven? $($Round up to zero places, ###$,$## cans$)$

Annual incremental cash inflows from the soda machine? $($rounded to two places, $#$.$##$)$

What is the payback period in years? $($rounded to two places, #$.$## years$)$

If the time value of money is $12\%$ per year what is the net present value? Use the tables on page $18.$

What is the internal rate of return. Pick the closest interest rate from the tables on page $18.$