1. The dean of the School of Fine Arts is trying to decide whether to purchase a copy machine to place in the lobby of the building. The machine would add to student convenience, but the dean feels compelled to earn an 8 percent return on the investment of funds. Estimates of cash inflows from copy machines that have been placed in other university buildings indicate that the copy machine would probably produce incremental cash inflows of approximately $15,500 per year. The machine is expected to have a three-year useful life with a zero salvage value. (Use appropriate factor(s) from the tables provided.). The first table is available on this link(http://lectures.mhhe.com/connect/0073526789/Tables/table_1.jpg) and the second table is available on this link(http://lectures.mhhe.com/connect/0077632370/Table%202.JPG)

Required a. Use Present Value PV of $1 to determine the maximum amount of cash the dean should be willing to pay for a copy machine. (Round intermediate calculations and final answer to 2 decimal places.)

b. Use Present Value PVA of $1 to determine the maximum amount of cash the dean should be willing to pay for a copy machine. (Round your final answer to 2 decimal places.)

2. Brett Dunlop is seeking part-time employment while he attends school. He is considering purchasing technical equipment that will enable him to start a small training services company that will offer tutorial services over the Internet. Brett expects demand for the service to grow rapidly in the first two years of operation as customers learn about the availability of the Internet assistance. Thereafter, he expects demand to stabilize.

The following table presents the expected cash flows.

Year of Operation	Cash Inflow			Cash Outflow
2015	$	13,000		$	8,300
2016		19,500			11,200
2017		21,500			13,500
2018		21,500			13,500

In addition to these cash flows, Mr. Dunlop expects to pay $21,100 for the equipment. He also expects to pay $3,500 for a major overhaul and updating of the equipment at the end of the second year of operation. The equipment is expected to have a $1,500 salvage value and a four year useful life. Mr. Dunlop desires to earn a rate of return of 9 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Required a. Calculate the net present value of the investment opportunity. (Negative amount should be indicated by a minus sign. Round intermediate calculations and final answer to 2 decimal places.)

b-1. Indicate whether the investment opportunity is expected to earn a return that is above or below the desired rate of return. Below Above

b-2. Based on your answer in Requirement b-1, should the investment opportunity be accepted or Rejected

3. Drinkwater Company has a choice of two investment alternatives. The present value of cash inflows and outflows for the first alternative is $95,000 and $89,600, respectively. The present value of cash inflows and outflows for the second alternative is $213,000 and $205,100, respectively.

Required a. Calculate the net present value of each investment opportunity.

b. Calculate the present value index for each investment opportunity. (Round your answers to 2 decimal places.)

c. Indicate which investment will produce the higher rate of return. Alternative 1 or Alternative 2

4. Hosier and Wogan (H&W) is a partnership that owns a small company. It is considering two alternative investment opportunities. The first investment opportunity will have a five-year useful life, will cost $13,224.81, and will generate expected cash inflows of $3,400 per year. The second investment is expected to have a useful life of four years, will cost $9,415.78, and will generate expected cash inflows of $3,100 per year. Assume that H&W has the funds available to accept only one of the opportunities. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Required a. Calculate the internal rate of return of each investment opportunity in %.

b. Based on the internal rates of return, which opportunity should H&W select? First investment Second investment

5. Barker Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Barker would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow.

Year	Nature of Item	Cash Inflow			Cash Outflow
2015	Purchase price				$	85,400
2015	Revenue	$	33,000
2016	Revenue		33,000
2017	Revenue		28,000
2017	Major overhaul					8,600
2018	Revenue		19,000
2019	Revenue		17,000
2019	Salvage value		7,400

Required a. Determine the payback period using the accumulated cash flows approach

b. Determine the payback period using the average cash flows approach. (Round your answer to 1 decimal place.)

6. Scarlett Painting Company is considering whether to purchase a new spray paint machine that costs $3,200. The machine is expected to save labor, increasing net income by $640 per year. The effective life of the machine is 15 years according to the manufacturers estimate. Required a. Determine the unadjusted rate of return based on the average cost of the investment (Round your final answer to the nearest whole percent.) 7. Pedro Spier, the president of Spier Enterprises, is considering two investment opportunities. Because of limited resources, he will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation; the machine is expected to have a useful life of four years and no salvage value. Project B supports a training program that will improve the skills of employees operating the current equipment. Initial cash expenditures for Project A are $101,000 and for Project B are $50,000. The annual expected cash inflows are $39,015 for Project A and $17,160 for Project B. Both investments are expected to provide cash flow benefits for the next four years. Spier Enterprises cost of capital is 6 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Required a-1. Compute the net present value of each project. (Round your intermediate calculations and final answers to 2 decimal places.)

a-2. Which project should be adopted based on the net present value approach? Project A Project B

b-1. Compute the approximate internal rate of return of each project(%)

b-2. Which one should be adopted based on the internal rate of return approach? Project A Project B

8. Austen Ren owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternatives. One involves purchasing a machine that would enable Mr. Ren to offer frozen yogurt to customers. The machine would cost $8,100 and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expenses associated with selling yogurt are expected to be $5,990 and $820, respectively. Alternatively, Mr. Ren could purchase for $9,920 the equipment necessary to serve cappuccino. That equipment has an expected useful life of four years and no salvage value. Additional annual cash revenues and cash operating expenses associated with selling cappuccino are expected to be $8,290 and $2,240, respectively. Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent.

Required a. Determine the payback period( years) and unadjusted rate of return (%) (use average investment) for each alternative. (Round "Payback period" to 2 decimal places. Round percentage answers to 2 decimal places (i.e., .2345 should be entered as 23.45).)