A company that manufactures recreational pedal boats has approached Michael Cichanowski to ask if he would be interested in using Current Designs' rotomold expertise and equipment to produce some of the pedal boat components. Michael is intrigued by the idea and thinks it would be an interesting way of complementing the present product line. One of Michael'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 Michael wants to make sure that the returns justify the risks. In this case, since this is a new venture, Michael thinks that a 15% discount rate is appropriate to use to evaluate the project. As an intern at Current Designs, Michael 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 $316,000, 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. Click here to view the factor table. Compute the annual rate of return, (Round answer to 2 decimal places, e.g. 15.25\%.) Annual rate of return 86 eTextbook and Media Using multiple attempts will impact your score. 10% score reduction after attempt 4 (b) Compute the payback period. (Round answer to 2 decimal places, e.g. 15.25.) Payback period years eTextbook and Media Using multiple attempts will impact your score. 10% score reduction after attempt 4 Compute the net present value using a discount rate of 6%. (If the net present value is negative, use either a negative sign preceding the number e.g. 45 or parentheses es (45). Round answer to 0 decimal places, e.g. 125. For caiculation 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. eTextbook and Media Attempts: 0 of 5 used Using multiple attempts will impact your score. 10% score reduction after attempt 4 (d) Compute the net present value using a discount rate of 15\%. (If the net present value is negative, use either a negative sign preceding the number eg-45 or parentheses e.3. (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
