Reference no: EM132690491

Problem - Internal rate of return method-two projects - Toasted Treats Snack Company is considering two possible investments: a delivery truck or a bagging machine. The delivery truck would cost $44,271 and could be used to deliver an additional 61,000 bags of pretzels per year. Each bag of pretzels can be sold for a contribution margin of $0.40. The delivery truck operating expenses, excluding depreciation, are $0.70 per mile for 21,000 miles per year. The bagging machine would replace an old bagging machine, and its net investment cost would be $49,920. The new machine would require three fewer hours of direct labor per day. Direct labor 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, Toasted Treats has funds to invest in only one of the projects.

Required -

a. Compute the internal rate of return for each investment.

b. Provide a memo to management with a recommendation.