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The Elberta Fruit Farm of Ontano has always hired transient workers to pick its annualcherry crop. Janessa Wright the farm manager just received information on
The Elberta Fruit Farm of Ontano has always hired transient workers to pick its annualcherry crop. Janessa Wright the farm manager just received information on a cherry picking machine that is being purchased by many fruitfarms. The machine is a motorized device that shakes the cherry tree, causing the cherries to fail onto plastic tarps that funnel the cherries into binis Ms. Wight has gathered the following information to decide whether a cherry picker would be a profitable investment for the Elberta Fruit Farm a Currently, the farm is paying an average of $200,000 per year to transient workers to pick the chemes b. The cherry picker would cost $250,000. It would be depreciated using the straight-line method and would have no salvage value at the end of its 8-year useful life Annual out of pocket costs associated with the cherry picker would be cost of an operator and an assistant. 598.000 insurance $5,000 fuel: $15,000, and a maintenance contract. $20,000. Click here to view Exhibit 120-1 and Exhibit 128-2 to determine the appropriate discount factor using tables Required: 1 Determine the annual savings in cash operating costs that would be realized if the cherry picker were purchased 2a Compute the simple rate of return expected from the cherry picker 25 Would the cherry picker be purchased if Elberta Fruit Farm's required rate of return is 18%? 38. Compute the payback period on the cherry picker 3b The Elberta Fluit Farm will not purchase equipment unless it has a payback period of five years or less Would the cherry picker be purchased da Compute the internal rate of return promised by the cherry picker. 4. Based on this computation does it appear that the simple rate of return is an accurate guide in investment decisions
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