A company that manufactures recreational pedal boats has approached Brian Cichanowski to ask if he would be

interested in using Current Designs' rotomold, expertise and equipment to produce some of the pedal boat

components. Brian is intrigued by the idea and thinks it would be an interesting way of complementing the

present product line.

One of Brian's hesitations about the proposal is that the pedal boats are a different shape than the kayaks that

Current Designs produces. As a result, the company would need to buy an additional rotomold, oven in order to

produce the pedal boat components. This project clearly involves risks, and Brian wants to make sure that the

returns justify the risks. In this case, since this is a new venture, Brian thinks that a 12% discount rate is

appropriate to use to evaluate the project.

As an intern at Current Designs, Brian has asked you to prepare an initial evaluation of this proposal. To aid in

your analysis, he has provided the following information and assumptions.

1. The new rotomold oven will have a cost of $241,000, a salvage value of S0, and an 8-year useful life.

Straight-line depreciation will be used.

2.

The projected revenues, costs, and results for each of the 8 years of this project are as follows.

Sales $207600

Less.

Manufacturing costs $130600

Depreciation &30125

Shipping and Administrative $19000 $179725

Income before income taxes $27875

Income tax expense $11935

Net Income $15940

a. Compute the annual rate of return