Home / Questions / a company is considering two investments
a company is considering two investments:
a delivery truck or
a bagging machine
the delivery truck would cost$44,271 and could used to deliver an additional 61000bags of pretzels each year. each bag of pretzels can be sold for for a contribution margin of $0.40. the delivery truck operating costs, excluding depreciation, are $0.70 per mile for 21000 miles per year. the bagging truck would replace an old bagging machine, and its net investment cost would be $49,920. the new machine would reequire three fewer hours of direct labour per day. direct labour 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 13%. however the company has funds to invest in only one of the projects.
required:
i).compute the net present value for each investment.
ii). provide a memo to the management with a recommendation.
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