1. Austen Ren owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternatives. One involves purchasing a machine that would enable Mr. Ren to offer frozen yogurt to customers. The machine would cost $8,100 and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expenses associated with selling yogurt are expected to be $5,990 and $820, respectively. Alternatively, Mr. Ren could purchase for $9,920 the equipment necessary to serve cappuccino. That equipment has an expected useful life of four years and no salvage value. Additional annual cash revenues and cash operating expenses associated with selling cappuccino are expected to be $8,290 and $2,240, respectively. Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent.

Required a. Determine the payback period and unadjusted rate of return (use average investment) for each alternative. (Round "Payback period" to 2 decimal places. Round percentage answers to 2 decimal places (i.e., .2345 should be entered as 23.45).)

2. Scarlett Painting Company is considering whether to purchase a new spray paint machine that costs $3,200. The machine is expected to save labor, increasing net income by $640 per year. The effective life of the machine is 15 years according to the manufacturers estimate.

Required a. Determine the unadjusted rate of return based on the average cost of the investment. (Round your final answer to the nearest whole percent.)

3. Brett Dunlop is seeking part-time employment while he attends school. He is considering purchasing technical equipment that will enable him to start a small training services company that will offer tutorial services over the Internet. Brett expects demand for the service to grow rapidly in the first two years of operation as customers learn about the availability of the Internet assistance. Thereafter, he expects demand to stabilize. The following table presents the expected cash flows.

Year of Operation Cash Inflow Cash Outflow

2015 $ 13,000 $ 8,300

2016 19,500 11,200

2017 21,500 13,500

2018 21,500 13,500

In addition to these cash flows, Mr. Dunlop expects to pay $21,100 for the equipment. He also expects to pay $3,500 for a major overhaul and updating of the equipment at the end of the second year of operation. The equipment is expected to have a $1,500 salvage value and a four year useful life. Mr. Dunlop desires to earn a rate of return of 9 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) The (PV of $1 and PVA of $1) are available on the link(http://lectures.mhhe.com/connect/0073526789/Tables/table_1.jpg) and (http://lectures.mhhe.com/connect/0077632370/Table%202.JPG)