Question
Duffy Dog Pizzeria is considering expanding operations by establishing a delivery business. This will require the purchase of an oven that will cost $48,000, including
Duffy Dog Pizzeria is considering expanding operations by establishing a delivery business. This will require the purchase of an oven that will cost $48,000, including installation. The oven is expected to last five years, have a $4,800 residual value, and will be depreciated using the straight-line method. Cash flows associated with the delivery business are as follows: Item Year 1 Year 2 Year 3 Year 4 Year 5 Revenue $62,400 $63,648 $75,104 $84,480 $91,430 Ingredients (24,096 ) (26,496 ) (29,178 ) (32,105 ) (35,228 ) Salary (23,904 ) (25,824 ) (27,744 ) (29,664 ) (31,488 ) Additional misc. (2,016 ) (2,208 ) (2,400 ) (2,592 ) (2,688 ) Residual value 4,800 In addition to the above, there are tax consequences related to the new business, and the companys tax rate is 20 percent. Click here to view factor tables Calculate the internal rate of return for the delivery business. (Hint: Try a range of rates between 14 percent and 16 percent.) (Round present value factor calculations to 4 decimal places, e.g. 1.2151 and final answer to 0 decimal places, e.g. 18%.) The internal rate of return enter the internal rate of return in percentages rounded to 0 decimal places % Should Duffy Dog Pizzeria invest in the delivery business if the required rate of return is 10 percent? Duffy Dog Pizzeria select an option invest in the delivery business.
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