9. The Bramble Company is planning to purchase $543,000 of equipment with an estimated seven-year life and no estimated salvage value. The company has projected the following annual cash flows for the investment.

Year		Projected Cash Flows
1			$203,000
2			154,000
3			108,000
4			62,400
5			62,400
6			44,000
7			44,000
Total			$677,800

(a) Calculate the payback period for the proposed equipment purchase. Assume that all cash flows occur evenly throughout the year.

Payback period

enter a number of years years and enter a number of months months.

(b) If Bramble requires a payback period of 4 years or less, should the company make this investment?

The company select an option should or should not make this investment.

10. Anthonys House of Music wants to purchase TransposeIt, a system that transposes any song in its database and prints sheet music in the requested key. This system allows singers to obtain sheet music in keys that are suitable to their vocal range. The software for the system costs $10,700; a new computer and a laser printer costing $3,500 will be needed to run the system. Anthony estimates that the system will generate additional annual sales revenue of $23,400 and that annual cash expenditures will be $18,906. Anthony uses straight-line depreciation. The software, computer, and printer will have a useful life of 5 years. The system will have a $250 salvage value at the end of its 5-year useful life.

(a)

Calculate the annual net operating income generated by the system.

Annual net operating income

$enter the annual net operating income in dollars

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(b)

Calculate the accounting rate of return of the system.

Accounting rate of return

enter the accounting rate of return in percentages %

11. Matthew Young is evaluating two new business opportunities. Each of the opportunities shown below has a 15-year life. Matthewuses a 12% discount rate.

		Option 1		Option 2
Equipment purchase and installation		$70,200		$82,000
Annual cash flow		$27,300		$29,700
Equipment overhaul in year 6		$4,700		-
Equipment overhaul in year 8		-		$6,050

Click here to view the factor table.

(a)

Calculate the net present value of the two opportunities. (Round present value factor calculations to 4 decimal places, e.g. 1.2514 and the final answers to 0 decimal places, e.g. 59,991.)

	Option 1	Option 2
Net present value	$enter a dollar amount rounded to 0 decimal places	$enter a dollar amount rounded to 0 decimal places

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(b)

Calculate the profitability index of the two opportunities. (Round answers to 2 decimal places, e.g. 15.25.)

	Option 1	Option 2
Profitability Index	enter profitability index rounded to 2 decimal places	enter profitability index rounded to 2 decimal places

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(c)

Which option should Matthew choose?

Matthew should choose select an option Option 1Option 2.

12.

Culver Pix currently uses a six-year-old molding machine to manufacture silver picture frames. The company paid $95,000 for the machine, which was state of the art at the time of purchase. Although the machine will likely last another ten years, it will need a $12,000 overhaul in four years. More important, it does not provide enough capacity to meet customer demand. The company currently produces and sells 9,000 frames per year, generating a total contribution margin of $92,500. Martson Molders currently sells a molding machine that will allow Culver Pix to increase production and sales to 12,000 frames per year. The machine, which has a ten-year life, sells for $137,000 and would cost $10,000 per year to operate. Culver Pixs current machine costs only $8,000 per year to operate. If Culver Pix purchases the new machine, the old machine could be sold at its book value of $5,000. The new machine is expected to have a salvage value of $20,100 at the end of its ten-year life. Culver Pix uses straight-line depreciation. Click here to view the factor table.

(a)

Calculate the new machines net present value assuming a 14% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)

Net present value

$enter the net present value in dollars rounded to 0 decimal places

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(b)

Use Excel or a similar spreadsheet application to calculate the new machines internal rate of return. (Round answer to 2 decimal places, e.g. 1.25%.)

Internal rate of return

enter the internal rate of return in percentages rounded to 1 decimal place %

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(c)

Calculate the new machines payback period. (Round answer to 2 decimal places, e.g. 1.25.)

Payback period

enter the payback period in years rounded to 2 decimal places years