Internal Rate of Return [LO2]
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.
Required:
(Ignore income taxes.)

• 1. What would be the total annual cash inflows associated with the new truck for capital budgeting purposes?

• 2. Find the internal rate of return promised by the new truck to the nearest whole percent.

• 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 to the nearest whole percent