Answer Problem 8 Requirements 1 to 3.

848 Chapter 19 a. Assume that the actual cash inflow each year is 20% greater than percent. estimated. Recompute the internal rate of return to nearest whole Assume that the actual cash inflow each year is 20% less than estimated. Recompute the internal rate of return to the nearest whole percent. 5. Refer to the original data. Assume that the equipment is purchased and that the room is opened for dental use. However, due to an increasing number of dentists in the area, the clinic is able to generate only P30,000 per year in net cash receipts from the new room. At the end of five years, the clinic closes the room and sells the equipment to a newly licensed dentist for a cash price of P61,375. Compute the internal rate of return to the nearest whole percent that the clinic earned on its investment over the five-year period. Round all peso amounts to the nearest whole peso. (Hint: A useful way to proceed is to find the discount rate that will cause the net present value of the investment to be equal to, or near, zero). Problem 8 Seattle Amusements Corporation places electronic games and other amusement devices in supermarkets and similar outlets throughout the country. Seattle Amusements is investigating the purchase of a new electronic game called The Coven. The manufacturer will sell 20 games to Seattle Amusements for a total price of P180,000. Seattle Amusements has determined the following additional information about the game: a. The game would have a five-year useful life and a negligible salvage value. The company uses straight-line depreciation. b. The game would replace other games that are unpopular and generating little revenue. These other games would be sold for a total of P30,000. c. Seattle Amusements estimates that The Coven would generate annual incremental revenues of P200,000 (total for all 20 games). Annual incremental out-of-pocket costs would be (in total): maintenance, P50.000, and insurance, P10,000. In addition, Seattle Amusements would have to pay a commission of 40% of total revenues to the supermarkets and other outlets in which the games were placed.Capital Budgeting Decisions 849 Required: (Ignore income taxes.) 1. Prepare a contribution format income statement showing the net operating income each year from The Coven. 2. Compute the simple rate of return on The Coven. Will the game be purchased if Seattle Amusements accepts any project with a simple rate of return greater than 14%? 3. Compute the payback period on The Coven. If the company accepts any investment with a payback period of less than three years, will the game be purchased? V. Multiple Choice In is determined by