7.A piece of labor-saving equipment has just come onto the market that Mitsui Electronics, Ltd., could use to reduce costs in one of its plants in Japan. Relevant data relating to the equipment follow:
Purchase cost of the equipment $412,500
Annual cost savings that will be
provided by the equipment $75,000
Life of the equipment 10 years
1a. Compute the payback period for the equipment.
Simple rate of return ______ %
8.The management of Unter Corporation, an architectural design firm, is considering an investment with the following cash flows:
Year Investment Cash Inflow
1 $52,000 $4,000
2 $6,000 $8,000
1. Determine the payback period of the investment.
9.Information on four investment proposals is given below:
A B C D
Investment required $(390,000) $(30,000) $(40,000) $(600,000)
Present value of cash inflows 551,000 41,000 64,100 800,000
Net present value $161,000 $11,000 $24,100 $200,000
Life of the project 5 years 7 years 6 years 6 years
1. Compute the project profitability index for each investment proposal. (Round your answers to 2 decimal places.)
2. Rank the proposals in terms of preference.
Investment Proposa lProject Profitability Index Rank Preference
A ? Second
B ? Third
C ? First
D ? Fourth
10The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $60,000. The machine would replace an old piece of equipment that costs $15,000 per year to operate. The new machine would cost $6,000 per year to operate. The old machine currently in use could be sold now for a salvage value of $20,000. The new machine would have a useful life of 10 years with no salvage value.
1. What is the annual depreciation expense associated with the new bottling machine?
2. What is the annual incremental net operating income provided by the new bottling machine?
3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return?
4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.)
11.Perit Industries has $140,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are:
Project A Project B
Cost of equipment required $140,000 $0
Working capital investment required $0 $140,000
Annual cash inflows $23,000 $35,000
Salvage value of equipment in six years $8,400 $0
Life of the project 6 years 6 years
The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries’ discount rate is 15%.
1. Compute the net present value of Project A. (Enter negative value with a minus sign. Round your final answer to the nearest whole dollar amount.)
2. Compute the net present value of Project B. (Enter negative value with a minus sign. Round your final answer to the nearest whole dollar amount.)
3. Which investment alternative (if either) would you recommend that the company accept?
Just answers should be fine