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Shem Company, engaged in selling bottled water, is evaluating two possible alternatives: 1. Delivery truck Acquisition cost $570,000 Useful life 6 years The truck can

Shem Company, engaged in selling bottled water, is evaluating two possible alternatives:

1. Delivery truck Acquisition cost $570,000

Useful life 6 years

The truck can deliver an additional 150,000 bottles of water per year. The contribution margin per bottle is $2.00. the acquisition of the new truck will cause an increase in fixed operating costs, excluding depreciation, of $5.00 per kilometer. The truck is expected to run a 20,000 kilometers per year.

2. Bottling machine Acquisition cost $450,000

Useful life 6 years

The use of the new bottling machine would enable the company to save labor time by 20 hours per day. The labor rate per hour is $40 and there are 280 operating days in a year.

For capital investment projects, the company's minimum desired rate of return is 10%. The company pays income tax at 32% of income before tax.

Compared to delivery truck, the payback period of machine is shorter by _________per year.

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