Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

a. Compute the annual rate of return. (Round to two decimal places.) b. Compute the payback period. (Round to two decimal places.) c. Compute the

image text in transcribeda. Compute the annual rate of return. (Round to two decimal places.)

b. Compute the payback period. (Round to two decimal places.)

c. Compute the net present value using a discount rate of 9%. (Round to nearest dollar.) Should the proposal be accepted using this discount rate?

d. Compute the net present value using a discount rate of 15%. (Round to nearest dollar.) Should the proposal be accepted using this discount rate?

Thanks for helping.

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 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 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. 2. The new rotomold oven will have a cost of $290,000, a salvage value of $0, and an 8-year useful life. Straight-line depreciation will be used. The projected revenues, costs, and results for each of the 8 years of this project are as follows. $205,200 Sales Less: Manufacturing costs Depreciation Shipping and administrative costs Income before income taxes Income tax expense $120,200 37,800 22,000 180,000 25,200 11,200 $14,000 Net income

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Accounting questions

Question

1. Describe the factors that lead to productive conflict

Answered: 1 week ago