SOLVING FOR UNKNOWNS Each of the following cases is independent. Assume that all cash flows are after-tax cash flows.

a. Thomas Company is investing $120,000 in a project that will yield a uniform series of cash inflows over the next four years.

b. Video Repair has decided to invest in some new electronic equipment. The equipment will have a three-year life and will produce a uniform series of cash savings.

The NPV of the equipment is $1,750, using a discount rate of 8 percent. The IRR is 12 percent.

c. A new lathe costing $60,096 will produce savings of $12,000 per year.

d. The NPV of a project is $3,927. The project has a life of four years and produces the following cash flows:

Year 1 $10,000 Year 3 $15,000 Year 2 $12,000 Year 4 ?

The cost of the project is two times the cash flow produced in year 4.

The discount rate is 10 percent.

Required:

. If the internal rate of return is 14 percent for Thomas Company, how much cash inflow per year can be expected?

. Determine the investment and the amount of cash savings realized each year for Video Repair.

. For scenario (c), how many years must the lathe last if an IRR of 18 percent is realized?

. For scenario (d), find the cost of the project and the cash flow for year 4.

Exercise