12.10.12

Boulder Creek Industries is considering an investment in equipment based on the following estimates:

Cost of equipment	$3,000,000
Residual value	200,000
Useful life	10 years

a. Determine the net present value of the equipment, assuming a desired rate of return of 12% and annual net cash flows of $800,000. Use the present value tables appearing in Exhibit 2 and 5 of this chapter.

Net present value $___

b. Determine the net present value of the equipment, assuming a desired rate of return of 12% and annual net cash flows of $400,000, $600,000, and $800,000. Use the present value tables (Exhibit 2 and 5) provided in the chapter in determining your answer. If required, use the minus sign to indicate a negative net present value.

Annual Net Cash Flow	$400,000	$600,000	$800,000
Net present value	__	___	___

Determine the net present value of the equipment, assuming a desired rate of return of 15% and annual net cash flows of $400,000, $600,000, and $800,000. Use the present value tables (Exhibit 2 and 5) provided in the chapter in determining your answer. If required, use the minus sign to indicate a negative net present value.

Annual Net Cash Flow	$400,000	$600,000	$800,000
Net present value	___	___	___

d. Determine the minimum annual net cash flow necessary to generate a positive net present value, assuming a desired rate of return of 12%. Round to the nearest dollar.

Annual Net Cash Flow ___$

The following data are accumulated by Boulder Creek Co. in evaluating the purchase of $160,000 of equipment, having a four-year useful life:

	Net Income		Net Cash Flow
Year 1	$45,000		$85,000
Year 2	27,000		67,000
Year 3	14,500		54,500
Year 4	2,000		42,000

1. Assuming that the desired rate of return is 6%, determine the net present value for the proposal. If required, round to the nearest dollar.

   Net present value

   $_____