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

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

$ 9,000

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

5  %

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

11  %