Munch N Crunch Snack Company is considering two possible inv

Munch N’ Crunch Snack Company is considering two possible investments: a delivery truck or a bagging machine. The delivery truck would cost $32,207.2 and could be used to deliver an additional 50,000 bags of pretzels per year. Each bag of pretzels can be sold for a contribution margin of $0.38. The delivery truck operating expenses, excluding depreciation, are $0.52 per mile for 17,000 miles per year. The bagging machine would replace an old bagging machine, and its net investment cost would be $22,777.5. The new machine would require three fewer hours of direct labor per day. Direct labor is $10 per hour. There are 250 operating days in the year. Both the truck and the bagging machine are estimated to have four-year lives. The minimum rate of return is 11%. However, Munch N’ Crunch has funds to invest in only one of the projects.

a. Compute the internal rate of return for each investment. Use the above table of present value of an annuity of $1. If required, round your present value factor answers to three decimal places and internal rate of return to the nearest percent.

b. The bagging machine rate of return was than the minimum rate of return requirement of 11% while the delivery truck rate of return was than the minimum rate of return requirement of 11%. Therefore the recommendation is to invest in the .

Present Value of an Annuity of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	1.833	1.736	1.690	1.626	1.528
3	2.673	2.487	2.402	2.283	2.106
4	3.465	3.170	3.037	2.855	2.589
5	4.212	3.791	3.605	3.352	2.991
6	4.917	4.355	4.111	3.784	3.326
7	5.582	4.868	4.564	4.160	3.605
8	6.210	5.335	4.968	4.487	3.837
9	6.802	5.759	5.328	4.772	4.031
10	7.360	6.145	5.650	5.019	4.192

Solution

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. Calculation of Net Cash Inflow: Delivery Truck Additional Delivery of 50000 Bags Contribution Margin of per bag 0.38 Total Contribution Margin 19000 Less: Cash Operating Expense 0.52*17000 8840 Net Incremental Cash inflow 10160 Bagging Machine Cash Saving by Hours 7500 (3Hour*10 Per Hour*250 Days) Net Incremental Cash inflow 7500 6% 10% 12% 15% 20% Present Value of an Annuity of $1 at Compound Interest 4Years 3.465 3.17 3.037 2.855 2.589 Delivery Truck: Cash Inflow 10160 10160 10160 10160 10160 Present Value of Cash Flow (PVAF*Cash Flow) 35204 32207 30856 29007 26304 Bagging Machine: Cash Inflow 7500 7500 7500 7500 7500 Present Value of Cash Flow (PVAF*Cash Flow) 25988 23775 22778 21413 19418 Part A (IRR is point where PV of cash inflow is equal to Outlfow) Delivery Truck Delivery Truck Bagging Machine Present value factor 3.17 3.037 Internal rate of return 10% 12% Part B More Than Less Than Recommendation is to invest in the Baggin Machine