Monday, August 19, 2013

Pisa Pizza Parlor is investigating the purchase of a new $45,000 delivery truck that would contain specially designed warming racks

Pisa Pizza Parlor is investigating the purchase of a new $45,000 delivery truck that would contain specially designed warming racks. The new truck would have a six-year useful life. It would save $5,400 per year over the present method of delivering pizzas. In addition, it would result in the sale of 1,800 more pizzas each year. The company realizes a contribution margin of $2 per pizza. (Ignore income taxes.)



Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.



Required:

1.

What would be the total annual cash inflows associated with the new truck for capital budgeting purposes? (Omit the \"$\" sign in your response.)



Total annual cash inflows



2.

Find the internal rate of return promised by the new truck. (Round discount factor(s) to 3 decimal places and final answer to the closest interest rate. Omit the \"%\" sign in your response.)



Internal rate of return





3.

In addition to the data already provided, assume that due to the unique warming racks, the truck will have a $13,000 salvage value at the end of six years. Under these conditions, compute the internal rate of return. (Round discount factor(s) to 3 decimal places and final answer to the closest interest rate. Omit the \"%\" sign in your response.)



Internal rate of return




Click here for the SOLUTION

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