A company that manufactures recreational pedal boats has approached Mike Cichanowski to ask if he would be interested in usingCurrent Designs' rotomold expertise and equipment to produce some of the pedal boat components. Mike is intrigued by the idea and thinks it would be an interesting way of complementing the present product line.

One of Mike'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 Mike wants to make sure that the returns justify the risks. In this case, since this is a new venture, Mike thinks that a15% discount rate is appropriate to use to evaluate the project.

As an intern at Current Designs, Mike has asked you to make 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 $289,000, a salvage value of $0, and an8-year useful life. Straight-line depreciation will be used.2.The projected revenues, costs, and results for each of the8years of this project are as follows.

Sales

$223,600

Less:

Manufacturing costs$145,000Depreciation

35,000Shipping and administrative costs

20,000200,000Income before income taxes

23,600Income tax expense

9,600Net income

$14,000

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

Compute the net present value using a discount rate of6%.(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$

Should the proposal be accepted using this discount rate?

Reject

Accept

the proposal.

Compute the net present value using a discount rate of15%.(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?

Accept

Reject

the proposal.