Five Gals Ice Cream Store is looking at an automated machine that will serve ice cream in cones and cups directly to customers. It includes toppings as well. Customers would select their choices using an app on their phone, pay and then receive their treat untouched by human hands.
Revenue is expected to gradually increase - initially because of the novelty, and later because of the convenience.
Neither the prices for the cones and cups nor the volume sold are expected to change. Staffing costs would be greatly reduced, and utility costs would increase. No change in working capital is expected. Below is the pertinent data from an Income statement.
The automated machine can be purchased for $1,000,000 and could be sold at the end of year 4 for $300,000. A planning horizon of 4 years is being used to evaluate this proposal and the MARR is 16%.
a Prepare a cash flow statement for the Automated Ice Cream Store proposal based on the depreciation and Net Income taken from the income statement given below.
b Determine the internal rate of return.
c Determine the present worth.
d Based on the answers to parts a, b and c, should the machine be purchased?