Barlae 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 $200,000, has a life expectancy of five years. The increased net profit per year will be approximately $14,000, and the increased cash inflow per year will be approximately $55,400. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

1. a-1. Determine the unadjusted rate of return and (use average investment) to evaluate this project.

TABLE 1 PRESENT VALUE OF $1 n 4% 5% 6% 7% 8% 9% 10% 12% 14% 16% 20% 1 0.961538 0.952381 0.943396 0.934579 0.925926 0.917431 0.909091 0.892857 0.877193 0.862069 0.833333 2 0.924556 0.907029 0.889996 0.873439 0.857339 0.841680 0.826446 0.797194 0.769468 0.743163 0.694444 3 0.888996 0.863838 0.839619 0.816298 0.793832 0.772183 0.751315 0.711780 0.674972 0.640658 0.578704 4 0.854804 0.822702 0.792094 0.762895 0.735030 0.708425 0.683013 0.635518 0.592080 0.552291 0.482253 5 0.821927 0.783526 0.747258 0.712986 0.680583 0.649931 0.620921 0.567427 0.519369 0.476113 0.401878 6 0.790315 0.746215 0.704961 0.666342 0.630170 0.596267 0.564474 0.506631 0.455587 0.410442 0.334898 7 0.759918 0.710681 0.665057 0.622750 0.583490 0.5470340.513158 0.452349 0.399637 0.353830 0.279082 8 0.730690 0.6768390.627412 0.582009 0.540269 0.501866 0.466507 0.403883 0.350559 0.305025 0.232568 9 0.702587 0.644609 0.591898 0.543934 0.500249 0.460428 0.424098 0.360610 0.307508 0.262953 0.193807 10 0.675564 0.613913 0.558395 0.508349 0.463193 0.422411 0.385543 0.321973 0.269744 0.226684 0.161506 11 0.649581 0.584679 0.526788 0.475093 0.428883 0.3875330.350494 0.287476 0.236617 0.195417 0.134588 12 0.624597 0.556837 0.496969 0.444012 0.397114 0.355535 0.318631 0.256675 0.2075590.168463 0.112157 13 0.600574 0.530321 0.468839 0.414964 0.367698 0.326179 0.289664 0.229174 0.182069 0.145227 0.093464 14 0.577475 0.505068 0.442301 0.387817 0.340461 0.299246 0.263331 0.204620 0.159710 0.125195 0.077887 15 0.555265 0.481017 0.417265 0.362446 0.315242 0.274538 0.239392 0.182696 0.140096 0.107927 0.064905 16 0.533908 0.458112 0.393646 0.338735 0.291890 0.251870 0.2176290.163122 0.122892 0.093041 0.054088 17 0.513373 0.436297 0.371364 0.316574 0.270269 0.231073 0.197845 0.145644 0.107800 0.080207 0.045073 18 0.493628 0.415521 0.350344 0.295864 0.250249 0.211994 0.179859 0.130040 0.094561 0.069144 0.037561 190.474642 0.395734 0.330513 0.276508 0.231712 0.194490 0.163508 0.116107 0.082948 0.059607 0.031301 20 0.456387 0.376889 0.311805 0.2584190.214548 0.178431 0.148644 0.103667 0.072762 0.051385 0.026084 TABLE 2 PRESENT VALUE OF AN ANNUITY OF $1 n 4% 5% 6% 7% 8% 9% 10% 12% 14% 16% 20% 1 0.961538 0.952381 0.943396 0.934579 0.925926 0.917431 0.909091 0.892857 0.877193 0.862069 0.833333 2 1.886095 1.859410 1.833393 1.808018 1.783265 1.759111 1.735537 1.690051 1.646661 1.605232 1.527778 3 2.775091 2.723248 2.673012 2.624316 2.577097 2.531295 2.486852 2.401831 2.321632 2.245890 2.106481 4 3.629895 3.545951 3.465106 3.387211 3.312127 3.239720 3.169865 3.0373492.913712 2.798181 2.588735 5 4.451822 4.329477 4.212364 4.100197 3.992710 3.889651 3.790787 3.604776 3.433081 3.274294 2.990612 6 5.242137 5.075692 4.917324 4.766540 4.622880 4.4859194.355261 4.111407 3.888668 3.684736 3.325510 7 6.002055 5.786373 5.582381 5.389289 5.206370 5.032953 4.868419 4.563757 4.288305 4.038565 3.604592 6.732745 6.463213 6.209794 5.971299 5.746639 5.534819 5.334926 4.967640 4.638864 4.343591 3.837160 9 7.435332 7107822 6.801692 6.515232 6.246888 5.995247 5.759024 5.328250 4.946372 4.606544 4.030967 8.110896 7.721735 7.360087 7023582 6.710081 6.417658 6.144567 5.650223 5.216116 4.833227 4.192472 8.760477 8.306414 7.886875 7.498674 7.138964 6.805191 6.495061 5.937699 5.452733 5.028644 4.327060 12 9.385074 8.863252 8.383844 7.942686 7.536078 7.160725 6.813692 6.194374 5.660292 5.197107 4.439217 13 9.985648 9.393573 8.852683 8.357651 7.903776 7.486904 7103356 6.423548 5.842362 5.342334 4.532681 14 10.563123 9.898641 9.294984 8.745468 8.244237 7.786150 7.366687 6.628168 6.002072 5.467529 4.610567 15 11.118387 10.379658 9.7122499.107914 8.559479 8.060688 7.606080 6.810864 6.142168 5.575456 4.675473 16 11.652296 10.837770 10.105895 9.4466498.851369 8.312558 7.8237096.973986 6.265060 5.668497 4.729561 17 12.165669 11.274066 10.477260 9.763223 9.121638 8.543631 8.021553 7119630 6.372859 5.748704 4.774634 18 12.659297 11.689587 10.827603 10.059087 9.371887 8.755625 8.201412 7.249670 6.467420 5.817848 4.812195 1913.133939 12.085321 11.158116 10.335595 9.6035998.905115 8.364920 7.365777 6.550369 5.877455 4.843496 20 13.590326 12.462210 11.469921 10.594014 9.818147 9.128546 8.513564 7.469444 6.623131 5.928841 4.869580