1. Midwest Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $129,000 with a $11,000 residual value and a ten-year life. The equipment will replace one employee who has an average wage of $30,650 per year. In addition, the equipment will have operating and energy costs of $6,250 per year.

Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment. If required, round to the nearest whole percent. %

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2.Prime Financial Inc. is evaluating two capital investment proposals for a drive-up ATM kiosk, each requiring an investment of $125,000 and each with an eight-year life and expected total net cash flows of $200,000. Location 1 is expected to provide equal annual net cash flows of $25,000, and Location 2 is expected to have the following unequal annual net cash flows:

Year 1	$56,000		Year 5	$18,000
Year 2	43,000		Year 6	14,000
Year 3	26,000		Year 7	11,000
Year 4	24,000		Year 8	8,000

Determine the cash payback period for both location proposals.

Location 1	years
Location 2	years

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3. The capital investment committee of Ellis Transport and Storage Inc. is considering two investment projects. The estimated income from operations and net cash flows from each investment are as follows:

	Warehouse					Tracking Technology
Year	Income from Operations		Net Cash Flow			Income from Operations		Net Cash Flow
1	$61,600		$189,000			$129,000		$302,000
2	61,600		189,000			99,000		255,000
3	61,600		189,000			49,000		180,000
4	61,600		189,000			22,000		123,000
5	61,600		189,000			9,000		85,000
Total	$308,000		$945,000			$308,000		$945,000

Each project requires an investment of $560,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 12% for purposes of the net present value analysis.

Present Value of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	0.890	0.826	0.797	0.756	0.694
3	0.840	0.751	0.712	0.658	0.579
4	0.792	0.683	0.636	0.572	0.482
5	0.747	0.621	0.567	0.497	0.402
6	0.705	0.564	0.507	0.432	0.335
7	0.665	0.513	0.452	0.376	0.279
8	0.627	0.467	0.404	0.327	0.233
9	0.592	0.424	0.361	0.284	0.194
10	0.558	0.386	0.322	0.247	0.162

Required:

1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place.

	Average Rate of Return
Warehouse	%
Tracking Technology	%

1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, use the minus sign to indicate a negative net present value.

	Warehouse	Tracking Technology
Present value of net cash flow total	$	$
Less amount to be invested	$	$
Net present value	$	$

2. The warehouse has a net present value as tracking technology cash flows occur in time. Thus, if only one of the two projects can be accepted, the would be the more attractive.

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4. The internal rate of return method is used by King Bros. Construction Co. in analyzing a capital expenditure proposal that involves an investment of $64,890 and annual net cash flows of $18,000 for each of the five years of its useful life.

Present Value of an Annuity of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	1.833	1.736	1.690	1.626	1.528
3	2.673	2.487	2.402	2.283	2.106
4	3.465	3.170	3.037	2.855	2.589
5	4.212	3.791	3.605	3.352	2.991
6	4.917	4.355	4.111	3.784	3.326
7	5.582	4.868	4.564	4.160	3.605
8	6.210	5.335	4.968	4.487	3.837
9	6.802	5.759	5.328	4.772	4.031
10	7.360	6.145	5.650	5.019	4.192

a. Determine a present value factor for an annuity of $1 which can be used in determining the internal rate of return. If required, round your answer to three decimal places.

b. Using the factor determined in part (a) and the present value of an annuity of $1 table above, determine the internal rate of return for the proposal. %