1.Identify the irrelevant incremental cash flows.2.Calculate the net present values (NPVs).3.Calculate the equivalent annual costs (EACs).4.Based on cost only, rank the options from lowest to highest (least expensive to most expensive) using NPV and EAC.

"One, but not both," reverberated through the mind of the Mr. Ashton, President of the Piedmont Township Friends of the Library. He asked Ms. Taylor, the treasurer, to repeat the status to ensure that he had heard correctly. She repeated "We did receive the reimbursement grant. Unfortunately, the amount was less than we hoped. The grant for the library will cover either the computer project or the book collection project, but not both. Thus, we have to decide which project to finance. I wish we could fund both, but we can't." Mr. Ashton inquired, "Is it possible to purchase some of the books and some of the computers? This would seem to solve the problem and best serve the community's needs." Ms. Taylor explained that the costs were based on quantity discounts. "To reduce the quantity of books or number of computers would significantly increase the cost of the projects. So regrettably, that isn't an option." "What about funds on hand? Do we have enough to supplement the grant and cover both projects?" Ms. Taylor answered. "No, we do not." "We have yet to have our yearly fundraiser, but based on the expectation from the budget, even with the fundraiser we will not come close to funding both projects. Additionally, the decision is important because it will take years to generate the additional funding for the project not chosen. (See Figure 1 for selected financials.)Figure 1: Selected Financial Information Piedmont Township Library & Tech Center Annual Income (P&L) Statement General Operating Budget (Checking) Item 2009 2010 to date Revenue Budget Actual Budget Actual Beginning Balance $0.00 $0.00 $327.37 $327.37 Fundraising/Donations $1,000.00 $768.00 $1,500.00 $266.72 Grants $0.00 $0.00 $ 10,000.00** $0.00 Interest $0.00 $0.37 $0.00 $0.46 Loan Proceeds $0.00 $0.00 $ 10,000 $0.00 Total Revenue $1,000.00 $768.37 $21,827.00 $594.55 Expenses Budget Actual Budget Actual General Meetings $0.00 $0.00 $0.00 $0.00 Insurance $101.00 $101.00 $101.00 $101.00 P.O. Box $40.00 $40.00 $40.00 $40.00 Fundraising $300.00 $300.00 $300.00 $300.00 Loan Repayment $0.00 $0.00 $ 10,000 $0.00 Total Expenses $441.00 $441.00 $441.00 $441.00 Net Annual Income $559.00 $327.37 $11,436.37 $153.55 Grant awarded, but money must be spent before funds releasedThinking out loud, Mr. Ashton stated "We're helping the library. Based on that, we should order the books. Statistics show that two-thirds of America's children living in poverty have no books at home, and the number of families living in poverty is on the rise.' Just look at the statistics in our community. Without access to books, it will only get worse. The book collection must be updated. They will just have to refurbish the four older computers currently on hand." "That is true," Ms. Taylor, pointed out. "However, it is also a technology center. As such, it needs more than four refurbished computers. Additional updated computers are necessary. With access to computers, residents can increase computer skills, take on-line classes, fill out job applications and increase literacy." COMMUNITY INFORMATION Piedmont Township is a community comprised of six districts with a population of 1,574 residents. Of that number, 76.62% are classified as belonging to a minority group. According tothe most recent census data, 30%% of the population is below the poverty line and 33.2%% is under the age of 18." FRIENDS OF THE LIBRARY The Friends of the Piedmont Township Public Library & Technology Center is a non-profit organization with a mission "to assist the public library in reaching its full potential by fundraising, promoting volunteerism, community involvement and improving the quality of the library through a balance between technology and education." As such, the members volunteer, hold fundraisers, apply for grants, etc. While the organization does not make decisions for the library, it does donate to specific projects and make recommendations to the library board. PIEDMONT TOWNSHIP PUBLIC LIBRARY & TECHNOLOGY CENTER The facility is named the Piedmont Township Public Library & Technology Center. The mission is to inform, educate, and culturally enrich the lives of all citizens regardless of age, culture, and economic background The Library collects, organizes, and provides access to written information and technology resources to meet the educational, informational, recreational and cultural needs of the community. The library is committed to the highest standards of ethics and public service, and will strive for the maximum of effectiveness and economy in Library operations. The Library is dedicated to meeting the standards for a small public library as mandated by state regulations.The purpose of the community based technology center is to help bridge the knowledge gap enabling access to educational, informational, cultural and recreational resources. All citizens from pre-kinder garten to adult learners will have access to a teaching and learning center to acquire computer skills, and to participate in programs, workshops and training sessions. Additionally, this center is the only location in a 35 mile radius providing wireless Internet access to the local residents at no charge. THE TWO PROJECTS L. The computer project The library board determined that the library would need ten new computers in the technology Lib to support the community. An additional four refurbished systems currently available would be placed in the children's area. The refurbished computers will be placed in the lab if no new computers are obtained. All systems require Internet access and printing capabilities. The four old computer systems are to be refurbished at a cost of $200 total ($50 each). The wireless internet access is provided through the town for $120 per month and is available even if the new computers are not acquired. However, there is a difference of $20 ($140 vs $120) per month if the new computers are installed. The cost of the new computers is $9,015.14 Another $200 is needed for installation. The expected shelf-life of the systems is four years and the library uses straight line depreciation. However, an upgrade cost of $1,015.00 will increase the shelf-life to seven years total If theupgrade as chosen, it will be added to the initial coat. Straight-line depreciation will be used (Details listed in Figure 2) Figure 1: Project Data for the Computer Project Coat to refurbish computers $200 total ($50 each) Cost of wireless Internet Access $1 40 with new computers $120 without new computers Cool of new computers $9.015.14 Installation coals $200 Depreciation on computers without upgrade Four years, straight line to $0 Upgrade Costs $1.015 added to computer cost Depreciation on computers with upgrade Seven years, straight line to $0 1. The book collection project Volunteers weeded the current collection and identified the books that would be a part of the new collection. Approximately 200 books from the current collection were marked to be moved to the new collection. The books that were not in the new collection, but could be salvaged were sold in a community book drive. The book drive provided an additional $238 that could be used toward the projects. Based on the spreadsheet from the state that lists the required youth and young adult collection for a small library, Piedmont Township identified almost 400 books that need to be purchased and added to the collection. The quote received to update the collection totaled $5,500. An additional $1,500 is needed to acquire hardware to convert the collection to an automated catalog system. The books are not depreciated and have an expected life of twenty years. ( Details listed in Figure 3)Figure 3: Project Data for the Book Project Book life 20 war Coat of new book collection $5.500 Cost of automated catalog system $1,500 FINANCING and TAXES The Friends of the Library obtained a grant for $10,000 to pay for a community project. The gant is a reimbursement grant meaning once receipts are received, the grantor will reimburse purchases up to $10,000. Since the organization does not have the funds on hand, a local credit union agreed to provide the funds via a ban that will be repaid using the grant The bran has an interest rate of 45% and taxes are asse sued at 35%. (Details listed in Figure 4) Figure 4: Financing and Tax Information Value of Reimbursement Community Project $10,000 Grant Loan $10,000 at 45% THE WACC Conclusion Mr. Achion stared at the information given to him by Ma. Taylor. Questions whirled in his head. Which project (the computer purchases without the upgrades, the computer purchases with the upgrades of the book purchases) was bout? How should be compare the projects since none were reverie generating alternatives? Which option maximizes the social welfare of the community