Can you please help with Part 7? PART 7 Capital Decision Making Big Al gives his
ID: 2616728 • Letter: C
Question
Can you please help with Part 7?
PART 7 Capital Decision Making Big Al gives his worker's a one hour lunch and two fifteen minute breaks each day. He believes that a cold soda machine would be appreciated by his workers, and an appreciated worker is a good worker. He has priced a machine at a national member only warehouse for $2,200. The machine should be usable for 5 years, after which it would be inefficient, obsolete and would have to be disposed of at the dump. Big Al believes that 7 cans a day will be purchased. The plant is open five days a week, 50 weeks per year. A case of soda (24 cans) costs $5.52 and Big Al believes that a price of $.75 per can would win him good will. What is the estimated annual sales in cans of soda? {17.01} What is the contribution margin per can of soda? (rounded to two places, $#.##) {17.02} How many cans of soda must be sold each year to breakeven? (Round up to zero places, ###,### cans) {17.03} Annual incremental cash inflows from the soda machine? (rounded to two places, $#.##) {17.04} What is the payback period in years? (rounded to two places, #.## years) {17.05} If the time value of money is 12% per year what is the net present value? Use the tables on page 18. {17.06} What is the internal rate of return. Pick the closest interest rate from the tables on page 18. {17.07}Explanation / Answer
The contribution margin per can of soda=$0.52 cents; Can price $0.75- Can Cost $0.23.
The Number of cans to be sold to break even is 6429 Cans and it will take 2.67 years to break-even; 1st yr 2400, 2nd yr2400and 3rd yr 1629; 6429x.35margin=2200 machine cost.
Annual incremental cash flows $910 per year (1750 cans/yr x0.52margin per can).
IRR = 910 x PV(r,5) = 2200
= 2200/910
= 2.4175
Looking for 2.4175 in Year 5
IRR = `30.5%