Capital Decision Making NEED ANSWER FOR BOLDED QUESTIONS Big Al gives his worker
ID: 2717298 • Letter: C
Question
Capital Decision Making
NEED ANSWER FOR BOLDED QUESTIONS
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 $2,100. The machine should be
usable for 3 years, after which it would be inefficient, obsolete and would have to be disposed of at the
dump. Big Al believes that 11 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?
2,750 cans
What is the contribution margin per can of soda? (rounded to two places, $#.##)
$ 0.52
How many cans of soda must be sold each year to breakeven? (Round up to zero places, ###,### cans)
1,347 cans
Annual incremental cash inflows from the soda machine? (rounded to two places, $#.##)
$ 1,430.00
What is the payback period in years? (rounded to two places, #.## years)
2100/1430.
1.47 years
If the time value of money is 12% per year what is the net present value? Use the tables on page 18.
2.402
What is the internal rate of return. Pick the closest interest rate from the tables on page 18.
Capital Decision Making
NEED ANSWER FOR BOLDED QUESTIONS
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 $2,100. The machine should be
usable for 3 years, after which it would be inefficient, obsolete and would have to be disposed of at the
dump. Big Al believes that 11 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?
2,750 cans
What is the contribution margin per can of soda? (rounded to two places, $#.##)
$ 0.52
How many cans of soda must be sold each year to breakeven? (Round up to zero places, ###,### cans)
1,347 cans
Annual incremental cash inflows from the soda machine? (rounded to two places, $#.##)
$ 1,430.00
What is the payback period in years? (rounded to two places, #.## years)
2100/1430.
1.47 years
If the time value of money is 12% per year what is the net present value? Use the tables on page 18.
2.402
What is the internal rate of return. Pick the closest interest rate from the tables on page 18.
Explanation / Answer
Answer: The contribution margin per can of soda=$0.52 cents;
Can price $0.75- Can Cost $0.23.
Can cost=(5.52/24)=0.23
Number of cans=11 cans*5 day weeks*50 weeks=2750 cans/yr
Annual incremental cash flows $1430 per year (2750 cans/yr x0.52 margin per can).
calculation of NPV:
Calculation of IRR:
The pay back period =1.47 years ($initial investment cost 2100 / 1430 margin per yr)
Particulars Time P.V.F (12%) Amount ($) PV($) Machine price 0 1 -2100 -2100 Annual incremental cash flow 1 0.893 1430 1276.99 2 0.797 1430 1139.71 3 0.712 1430 1018.16 NPV 1334.86Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.