1. Roberts Originals Co. (ROC) provides new and unique cases and other assignments to professors each semester to ensure that students will not be able to find the solutions published online. Due to the epidemic of cheating on college campuses everywhere, the demand for the company's products has skyrocketed. In order to keep up with business needs, ROC plans to expand its problem writing capacity. The equipment needed for such an expansion will cost a total of $2,000,000. $1,000,000 of which would be paid today and then $500,000 payments at the end of the next 2 years. ROC currently charges professors $500 per year for their services. The expansion will allow ROC to provide services to an additional 200 professors in year one and an additional 75 professors in each of the following 9 years. Most of ROC's cost are fixed. The only variable costs include the printing of a solutions booklet and an accompanying CD for each professor which costs an average of $30 per professor. The new equipment would be useful for 10 years and have a disposal value of $55,000. ROC uses straight line depreciation. ROC requires a 8% rate of return and has an average tax rate of 30%. Requirements: 1. Calculate: a) The NPV of ROC's potential investment. b) The internal rate of return of ROC's potential investment. c) The payback period of ROC's potential investment. 2. Should ROC buy the equipment to expand? 2. ROC is considering investing $275,000 in order to gain more business for its plagiarism identifying services. The company has come up with two alternatives outlined below: Alternative 1 - Build a mobile unit. ROC could spend the money on a mobile unit that would travel from campus to campus in order to provide services to professors immediately after due dates and also to build a larger presence on campus. ROC charges $10.00 per paper it reviews. Currently it takes about an average of 15 minutes to review each paper for plagiarism. The only variable cost is for the labor which averages $11.00 per hour. The mobile unit would cost about $250 to maintain each year and ROC plans to spend about $1,000 on gas each year to fuel the mobile unit. ROC will have to include $500 of working capital in the mobile unit to give change back to any professors paying with cash. The mobile unit would operate 6 days a week for an average of 12 hours a day assuming a 52 week year. The unit should have a useful life of 10 years and have a salvage value of $5,000. Alternative 2 - Purchase new algorithm software. ROC uses algorithm software to review each paper for plagiarism. A new software is on the market that would allow ROC to cut the review time per paper at headquarters down to 13 and 1/3 minutes. Headquarters operates 16 hours a day, six days a week, for about 335 days per year and there is enough additional demand to review twice as many papers. Papers currently take an average of 15 minutes to review. Selling Price and variable costs are the same as Alternative 1. To use the new software ROC will have to update the computer that is currently being used. The cost of the new computer is included in the $275,000. The old computer cost $2,500 and has accumulated depreciation of $1,500 related to it, and ROC believes it can sell it for $400 dollars. The new software and computer will most likely be obsolete with no disposal value in 5 years. Requirement: Using a 10% rate of return and a 30% tax rate calculate the NPV for each alternative and recommend which alternative should be taken