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The internal rate of return method is used by Testerman Construction Co. in analyzing a capital expenditure proposal that involves an investment of $136,360 and annual net cash flows of $40,000 for each of the six years of its useful life. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the question below. Open spreadsheet Determine the internal rate of return for the proposal. % Internal rate of return method The internal rate of return method is used by Testerman Construction Co. in analyzing a capital expenditure proposal. The following data is provided: DATA Period 0 1 2 3 4 5 6 ONO Cash flow -$136,360 $40,000 $40,000 $40,000 $40,000 $40,000 $40,000 Using formulas and cell references, perform the required analysis, and input your answer into the Amount column. Transfer the numeric result for the green entry cell (B18) into the appropriate fields in CNOWV2 for grading. Amount Formula Internal rate of return Cash Payback Period, Net Present Value Analysis, and Qualitative considerations The plant manager of Shenzhen Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $90,000. The manager believes that the new investment will result in direct labor savings of $30,000 per year for 10 years. 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 3.353 2.991 6 4.917 4.355 4.111 3.785 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. What is the payback period on this project? 3 years b. What is the net present value, assuming a 10% rate of return? Use the table provided above. Round to the nearest whole dollar. Net present value 15,390 X Measure maps Moses Moonrocks Inc. has developed a balanced Scorecard with a measure map that suggests that the number of erroneous shipments has a direct effect on operating profit. The company estimates that every shipment error leads to a reduction of revenue by $8,250 and increased costs of about $5,500. Sales $229,000 Cost of goods sold 148,000 Depreciation expense 16,000 Other expenses 10,000 If the company has the above budgeted sales and costs for next month (without accounting for any possible shipping errors), determine how many shipping errors the company can afford to have and still break even. Break-even shipping errors -55,000 x
