A company that manufactures recreational pedal boats has approached Mike Cichanowski to ask if he would be interested in using Current 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 Mikes 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 a 12% discount rate is appropriate to use to evaluate the project.

As an intern at Current Designs, Mike 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 $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				$207,600
Less:
Manufacturing costs		$130,600
Depreciation		30,400
Shipping and administrative costs		19,000		180,000
Income before income taxes				27,600
Income tax expense				11,600
Net income				$16,000

A company that manufactures recreational pedal boats has approached Mike Cichanowski to ask if he would be interested in using Current Designs' rotomold expertise and equipment to produce some of the pedal boat components. Mike is intrigued by theidea and thinks it would be an interesting way of complementing the present product line One of Mike's hesitations about the proposalis 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 a 12% discount rate is appropriate to use to evaluate the project. As an intern at Current Designs, Mike has asked you to prepare an initial evaluation of this proposal. To aid in your analysis, he has provided the following information and assumptions. The new rotomoldoven will have a cost of $241,000, a salvage value of 50, and an 8-year useful life. Straight line depreciation will be used The projected revenues, costs, and results for each of the years of this project are as follows. 1. 2 Sales $207.600 Manufacturing costs Depreciation Shipping and administrative costs Income before income taxes income tax expense Net income $130,600 30,400 19.000 180,000 27,600 11,600 $16,000 (a) Compute the annual rate of return. (Round answer to 2 decimal plencies, eg15.25%) Annual rate of return % eTextbook and Media Save for later Attempts:0 of 3 used Submit Answer (b) The parts of this question must be completed in order. This part will be available when you complete the part above. The parts of this question must be completed in order. This part will be available when you complete the part above. (d) The parts of this question must be completed in order. This part will be available when you complete the part above