1. Bluebird Mfg. has received a special one-time order for 6,000 bird feeders at $7 per unit. Bluebird currently produces and sells 85,000 units at $9.00 each. This level represents 85% of its capacity. These bird feeders would be marketed under the wholesalers name and would not affect Bluebirds sales through its normal channels. Production costs for these units are $5.50 per unit, which includes $4.00 variable cost and $1.50 fixed cost. If Bluebird accepts this additional business, the incremental revenue will be:

a. $3,667 b. $28,500 c. $18,000 d. $24,000 e. $42,000

2. Porter Co. is analyzing two projects for the future. Assume that only one project can be selected.

	Project X				Project Y
Cost of machine	$	64,400			$	61,800
Net cash flow:
Year 1		22,900				4,300
Year 2		22,900				28,100
Year 3		22,900				28,100
Year 4		0				21,500

The payback period in years for Project Y is: a. 4.00 b. 3.05 c. 2.00 d. 3.06 e. 3.94

3. Tressor Company is considering a 5-year project. The company plans to invest $90,000 now and it forecasts cash flows for each year of $27,000. The company requires that investments yield a discount rate of at least 14%. Selected factors for a present value of an annuity of 1 for five years are shown below:

Interest rate			Present value of an annuity of $1 factor for year 5
10	%		3.7908
12	%		3.6048
14	%		3.4331

Calculate the internal rate of return to determine whether it should accept this project. a.The project should be accepted because it will earn more than 10%. b.The project should be rejected because it will not earn exactly 14% c.The project should be accepted because it will earn more than 14%. d.The project should be rejected because it will earn less than 14%. e.The project will earn more than 12% but less than 14%. At a hurdle rate of 14%, the project should be rejected.

4. A company is planning to purchase a machine that will cost $31,200, have a six-year life, and be depreciated over a six-year period with 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				$	126,000
Costs:
Manufacturing	$	53,200
Depreciation on machine		5,200
Selling and administrative expenses		42,000			(100,400	)
Income before taxes				$	25,600
Income tax (40%)					(10,240	)
Net income				$	15,360

a. 6 Years b. 3.48 years c. 2.03 years d. 4.06 years e. 1.52 years

5. A machine costs $192,000 and will have an eight-year life, a $35,000 salvage value, and straight-line depreciation is used. Management estimates the machine will yield an after-tax net income of $24,500 each year. Compute the accounting rate of return for the investment.

a. 36.5% b. 22.6% c. 25.5% d. 21.6% e.38.9%

6. Granfield Company has a piece of manufacturing equipment with a book value of $44,500 and a remaining useful life of four years. At the end of the four years the equipment will have a zero salvage value. The market value of the equipment is currently $22,900. Granfield can purchase a new machine for $129,000 and receive $22,900 in return for trading in its old machine. The new machine will reduce variable manufacturing costs by $19,900 per year over the four-year life of the new machine. The total increase or decrease in net income by replacing the current machine with the new machine (ignoring the time value of money) is:

a. $79,600 increase b. $55,150 increase c. $26,500 increase d. $21,600 decrease e. $26,500 decrease

7. Chang Industries has 2,200 defective units of product that have already cost $14.20 each to produce. A salvage company will purchase the defective units as they are for $5.20 each. Chang's production manager reports that the defects can be corrected for $5.80 per unit, enabling them to be sold at their regular market price of $21.40. The incremental income or loss on reworking the units is:

a. $22,880 loss b. $12,760 loss c. $34,320 income d. $35,640 income e. $22,880 income

8. 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 $37,300 with a four-year life and a $1,000 salvage value. Xavier requires an 8% return on investment. The expected year-end net cash flows are $12,300 in each of the four years. What is the machine's net present value? (Round intermediate answer to the nearest whole dollar.)

a. $4,174 b. $(4,174) c. $3,439 d.$ (3,439) e. $41,474