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Exercise 12-5 Preference Ranking (L012-5) Information on four investment proposals is given below: Investment required Present value of cash inflows Net present value Life of the project Investment Proposal B $(118,000) (128,000) $(98,000) $(162,000 153,400 204,800 142,100 226,800 $ 35,400 $ 76,800 $ 44,100 $ 64,800 5 years 7 years 6 years 6 years Required: 1. Compute the project profitability Index for each investment proposal (Round your answers to 2 decimal places.) 2. Rank the proposals in terms of preference. Investment Proposal Project Profitability Index Rank Preference A B D Exercise 12-6 Simple Rate of Return Method (L012-6) The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $60,000. The machine would replace an old piece of equipment that costs $15.000 per year to operate. The new machine would cost $6,000 per year to operate. The old machine currently in use could be sold now for a salvage value of $20,000. The new machine would have a useful life of 10 years with no salvage value Required: 1. What is the annual depreciation expense associated with the new botting machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of retum on the new bottling machine? (Round your answer to 1 decimal place le 0.123 should be considered as 12.3%) 1 2 Depreciation expense Incremental niet operating income Initial investment Simple rate of return 3 4