1.

A company is planning to purchase a machine that will cost $30,000 with a six-year life and no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the payback period for this machine?

Sales				$	96,000
Costs:
Manufacturing	$	54,000
Depreciation on machine		5,000
Selling and administrative expenses		32,000			(91,000	)
Income before taxes				$	5,000
Income tax (30%)					(1,500	)
Net income				$	3,500

2.Carmel Corporation is considering the purchase of a machine costing $54,000 with a 7-year useful life and no salvage value. Carmel uses straight-line depreciation and assumes that the annual cash inflow from the machine will be received uniformly throughout each year. In calculating the accounting rate of return, what is Carmel's average investment?

3.

The following present value factors are provided for use in this problem.

Periods	Present Value of $1 at 8%			Present Value of an Annuity of $1 at 8%
1		0.9259			0.9259
2		0.8573			1.7833
3		0.7938			2.5771
4		0.7350			3.3121

Xavier Co. wants to purchase a machine for $36,700 with a four year life and a $1,100 salvage value. Xavier requires an 8% return on investment. The expected year-end net cash flows are $11,700 in each of the four years. What is the machine's net present value?

4.

Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual return on all investments. The company is considering two different investments. Each require an initial investment of $15,400 and will produce cash flows as follows:

End of Year	Investment
	A			B
1	$	8,400		$	0
2		8,400			0
3		8,400			25,200

The present value factors of $1 each year at 15% are:

1	0.8696
2	0.7561
3	0.6575

The present value of an annuity of $1 for 3 years at 15% is 2.2832 The net present value of Investment A is: