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Internal Rate of Return Method -Two Projects Cousin's Salted Snack Company is considering two possible investments: a delivery truck or a bagging machine. The delivery
Internal Rate of Return Method -Two Projects Cousin's Salted Snack Company is considering two possible investments: a delivery truck or a bagging machine. The delivery truck would cost $54,945.52 and could be used to deliver an additional 53,000 bags of taquitos chips per year. Each bag of chips can be sold for a contribution margin of $0.58. The delivery truck operating expenses, excluding depreciation, are $0.79 per mile for 18,000 miles per year. The bagging machine would replace an old bagging machine, and its net investment cost would be $42,525.00. The new machine would require three fewer hours of direct labor per day. Direct labor is $15 per hour. There are 250 operating days in the year. Both the truck and the bagging machine are estimated to have six-year lives. The minimum rate of return is 19%. However, Cousin's has funds to invest in only one of the projects. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 1.833 1.736 1.690 1.626 1.528 2.673 2.487 2.402 2.283 2.106 3.465 3.170 3.037 2.855 2.589 4.212 3.791 3.605 3.353 2.991 4.917 4.355 4.111 3.785 3.326 5.582 4.868 4.564 4.160 3.605 6.210 5.335 4.968 4.487 3.837 6.802 5.759 5.328 4.772 4.031 7.360 6.145 5.650 5.019 4.192 a. Compute the internal rate of return for each investment. Use the above table of present value of an annuity of $1. Enter the present value factor to three decimal places. Delivery Truck Bagging Machine Present value factor Internal rate of return % % b. Which of the following should be included in a memo to management regarding the recommendation about the two projects? Select The delivery truck falls to exceed the minimum rate of return requirement. The bagging machine fails to exceed the minimum rate of return requirement. Both projects meet the minimum rate of return of 19%. Neither project meets the minimum rate of return of 19%. Check My Work (3 remaining)
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