A company that manufactures recreational pedal boats has approached Daniel Cichanowski to ask if he would be interested in using Current Designs rotomold expertise and equipment to produce some of the pedal boat components. Daniel is intrigued by the idea and thinks it would be an interesting way of complementing the present product line. One of Daniels 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 Daniel wants to make sure that the returns justify the risks. In this case, since this is a new venture, Daniel thinks that a 12% discount rate is appropriate to use to evaluate the project. As an intern at Current Designs, Daniel 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 $296,000, a salvage value of $0, 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				$205,400
Less:
Manufacturing costs		$123,400
Depreciation		37,000
Shipping and administrative costs		22,000		182,400
Income before income taxes				23,000
Income tax expense				9,120
Net income				$13,880

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(a)

Compute the annual rate of return. (Round answer to 2 decimal places, e.g. 15.25%.)

Annual rate of return

enter the annual rate of return in percentages rounded to 2 decimal places

%

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10% score reduction after attempt 2

(b)

Compute the payback period. (Round answer to 2 decimal places, e.g. 15.25.)

Payback period

enter the payback period in years rounded to 2 decimal places

years

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(c)

Compute the net present value using a discount rate of 7%. (If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses eg (45). Round answer to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Net present value

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

Should the proposal be accepted using this discount rate? select an option AcceptReject the proposal.

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(d)

Compute the net present value using a discount rate of 12%. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses e.g. (45). Round answer to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Net present value

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

Should the proposal be accepted using this discount rate? select an option AcceptReject the proposal.

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