Austen Ren owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternatives. One involves purchasing a machine that would enable Mr. Ren to offer frozen yogurt to customers. The machine would cost $7,710 and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expenses associated with selling yogurt are expected to be $6,060 and $810, respectively. Alternatively, Mr. Ren could purchase for $9,920 the equipment necessary to serve cappuccino. That equipment has an expected useful life of four years and no salvage value. Additional annual cash revenues and cash operating expenses associated with selling cappuccino are expected to be $8,440 and $2,340, respectively. Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent. Required: a. Determine the payback period and unadjusted rate of return (use average investment) for each alternative. (Round "Payback period" to 2 decimal places. Round percentage answers to 2 decimal places (i.e., .2345 should be entered as 23.45).)

Desny Auto Repair, Inc., is evaluating a project to purchase equipment that will not only expand the companys capacity but also improve the quality of its repair services. The board of directors requires all capital investments to meet or exceed the minimum requirement of a 10 percent rate of return. However, the board has not clearly defined the rate of return. The president and controller are pondering two different rates of return: unadjusted rate of return and internal rate of return. The equipment, which costs $108,000, has a life expectancy of four years. The increased net profit per year will be approximately $6,400, and the increased cash inflow per year will be approximately $33,336. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required: a-1. Determine the unadjusted rate of return and (use average investment) to evaluate this project. (Round your answer to 2 decimal places. (i.e., .2345 should be entered as 23.45).) a-2. Based on the unadjusted rate of return, should the company invest in the equipment? Yes No

b-1. What is the internal rate of return of this project? b-2. Based on the internal rate of return, should the company invest in the equipment? Yes No c. Which method is better for this capital investment decision? Internal rate of return Unadjusted rate of return