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.) The value for (PV of $1 and PVA of $1) are available on the link(http://lectures.mhhe.com/connect/0073526789/Tables/table_1.jpg) and (http://lectures.mhhe.com/connect/0077632370/Table%202.JPG)

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).)