1.

a. Lt. Dan Corporation invested $80,000 in a manufacturing equipment. The salvage value of the asset is expected to be $0. The company is expected to add $9,000 per year to the net income. Using the original cost of the asset, the unadjusted rate of return on the investment will be? Hint: If the problem does not give you enough information to determine the net values, keep your calculations simple!

b. Triple Crossing Brewing is considering installing a new cooler (equipment) in order to increase the volume and variety of beverages they can offer. The new cooler will cost $24,000. It is expected to last 7 years but only if the cooler is overhauled (REPAIRED) at a cost of $4,000 at the end of year 4. The new cooler is expected to have a $2,000 salvage value at the end of 7 years. The new cooler is expected to generate additional revenues of $15,000 per year with an increase in expenses of $9,000 per year. Triple Crossings discount rate is 12%. What is the net present value of this investment opportunity? Should they invest in the cooler? Hint: determine the PV of each item. Be careful if the item is an annuity (annual) or one time only event.

PV of an annuity of SI Time 10% 12% 14% period 0.909 0.893 0.877 1.736 1.690 1.647 2 3 2.487 2.402 2.322 4 3.170 3.037 2.914 5 3.791 3.605 3.433 4.355 4.111 3.889 7 4.868 4.564 4.288 5.335 4.968 4.639 PV of SI Time 10% 12% 14% period 0.909 0.893 0.877 0.826 0.797 0.769 3 751 0.712 0.675 4 0.683 0.636 0.592 5 0.621 0.56 0519 0.564 0.507 0.456 7 0.313 0452 0.400 8 0.467 0.404 0.351