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

interested in using Current Designs rotomold experyise 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 Daniel'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 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

Click here to view the factor table.

(a)

Compute the annual rate of return. (Round answer to 2 decimal places, e.g. 15,25%.)

Annual rate of return

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

Payback period

years

(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 o decimal

places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table

provided.)

Net present value

Should the proposal be accepted using this discount rate?

the proposal.

(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

Should the proposal be accepted using this discount rate?

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 Daniel'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 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. Straightline depreciation will be used. 2 The projected revenues, cost5, and results for each of the 8 years of this project are as follows. Click here to view the factor table. (a) Compute the annual rate of return. (Round answer to 2 decimal places, e.3. 15.25x.) Annual rate of return Compute the payback period. (Round answer to 2 decimal places, e.g. 15.25.) Payback period years eTextbook and Media Attempts: 1 of 5 used Using multiple attempts will impact your score 10% score reduction after attempt 4 (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.8. 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.) Netpresent value $ Should the proposal be accepted using this discount rate? 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 es 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 Should the proposal be accepted using this discount rate? the proposal