=+E15-19 Internal rate ofreturn method—two projects Obj 2

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a. Delivery truck, 10%

Southwest Chip Company is considering two possible investments: a delivery truck or a bag¬

ging machine. The delivery truck would cost $39,918 and could be used to deliver an additional 36,250 bags oftaquitos chips per year. Each bag of chips can be sold tor a contribution margin of $0.40. The delivery truck operating expenses, excluding depreciation, are $0.35 per mile for 18,000 miles per year. The bagging machine would replace an old bagging machine, and its net investment cost would be $49,920. The new machine would require three fewer hours of direct labor per day. Direct labor is $16 per hour. There are 250 operating days in the year. Both the truck and the bagging machine are estimated to have seven-year lives. The minimum rate of return is 11%. However, Southwest has funds to invest in only one ofthe projects.