1. Hammer Company is considering the following two investment proposals:

The cash flow for the first proposal is as follows:

Initial investment:
Depreciable assets (straight-line)	$54,000
Working capital	6,000
Operations (per year for 4 years):
Cash receipts	$37,500
Cash expenditures	16,500
Disinvestment:
Salvage value of equipment	$4,500
Recovery of working capital	6,000

The second proposal is an investment proposal with the following cash flows:

The initial investment of this proposal is $100,000. The promised returns are: a semi-annual annuity of $5,500 for 8 years (the first payment is received at the end of the first 6 months after the initial investment is made).

Assuming that the cost of funds for the company is 8% and the risk is the same for both projects, determine the net present value for each investment and identify the most profitable investment. You may use a financial calculator or spreadsheet. Show your work.

2. Isabel Manufacturing is considering the following investment proposal:

Initial investment:
Depreciable assets (straight-line)	$50,000
Working capital	5,125
Operations (per year for 4 years):
Cash receipts	$27,750
Cash expenditures	4,800
Disinvestment:
Salvage value of equipment	$2,000
Recovery of working capital	3,125
Discount rate	6 percent

Required: Determine the following values:

a. Payback period

b. Accounting rate of return on average investment

c. Net present value

3. Superfast Burger Restaurant is considering the acquisition of a new machine that would reduce operating costs by $160,000 per year throughout its life. The machine has a cost of $480,000 and has an expected salvage value of $40,000 at the end of 4 years. For tax purposes, the restaurant plans to write off the $480,000 cost over the four-year life of the machine, using DDB, producing a tax shield from depreciation of $81,600, $40,800, $20,400, and $6,800 for years 1-4, respectively. The company has a 34 percent tax rate and using 12% interest rate. Required (Round all calculations to the nearest dollar.):

Prepare a schedule computing the net present value of the companys investment in the machine.