Assume that a company is considering buying a new piece of equipment for $250,000 that would have a useful life of five years and a salvage value of $25,000. The equipment would generate the following estimated annual revenues and expenses:

Revenues		$ 120,000
Less operating expenses:
Commissions	$ 15,000
Insurance	5,000
Depreciation	45,000
Maintenance	30,000	95,000
Net operating income		$ 25,000

Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.

Assuming a discount rate of 16%, what is the net present value of this investment?

2. Assume that a company is considering a capital investment project with a four-year time horizon and the following cash flows:

Cost of new equipment	$ 200,000
Working capital required	$ 50,000
Annual net cash inflows	$ 100,000
Maintenance and repairs in third year	$ 40,000
Salvage value of equipment in fourth year	$ 30,000

Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.

Assuming the companys required rate of return is 13%, the profitability index of the project is closest to:

3.

Assume that a company is considering a $2,400,000 capital investment in a project that would earn net income for each of the next five years as follows:

Sales		$ 1,900,000
Variable expenses		800,000
Contribution margin		1,100,000
Fixed expenses:
Out-of-pocket operating costs	$ 300,000
Depreciation	400,000	700,000
Net operating income		$ 400,000

Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.

If the companys discount rate is 24%, then the projects net present value is closest to: