Carsen Sorensen, controller of Thayn Company, just received the following data associated with production of a new product:

• Expected annual revenues: $770,000
• Projected product life cycle: five years
• Equipment: $800,000 with a salvage value of $100,000 after five years
• Expected increase in working capital: $110,000 (recoverable at the end of five years)
• Annual cash operating expenses: estimated at $462,000
• Required rate of return: 8 percent

The present value tables provided in Exhibit 19B.1 and Exhibit 19B.2 must be used to solve the following problems.

Required:

1. Estimate the annual cash flows for the new product. Enter cash outflows as negative amounts and cash inflows as positive amounts.

Year	Cash Flow
0	$fill in the blank 1
14	$fill in the blank 2
5	$fill in the blank 3

2. Using the estimated annual cash flows, calculate the NPV. $fill in the blank 4

3. What if revenues were overestimated by $154,000? Redo the NPV analysis, correcting for this error. Assume the operating expenses remain the same. Enter cash outflows as negative amounts and cash inflows as positive amounts.

Year	Cash Flow	Present Value
0	$fill in the blank 5	$fill in the blank 6
14	fill in the blank 7	fill in the blank 8
5	fill in the blank 9	fill in the blank 10
Net present value		$fill in the blank 11

EXHIBIT 19B.2 Present Value of an Annuity of $1 in Arrears* Periods 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30% 32% 40% 1.942 1.866 1 2 3 4 5 6 7 8 9 10 11 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 0.769 1.361 1.816 2.166 2.436 2.643 2.802 2.925 3.019 3.092 5.938 0.980 0.962 0.943 0.926 0.909 1.833 1.783 1.736 2.884 2.775 2.673 2.577 2.487 3.808 3.630 3.465 3.312 3.170 4.713 4.452 4.212 3.993 3.791 5.601 5.242 4.917 4.623 4.355 6.472 6.002 5.582 5.206 4.868 7.325 6.733 6.210 5.747 5.335 8.162 7.435 6.802 6.247 5.759 8.983 8.111 7.360 6.710 6.145 9.787 8.760 7.887 7.139 6.495 10.575 9.385 8.384 7.536 6.814 11.348 9.986 8.853 7.904 7.103 12.106 10.563 9.295 8.244 7.367 12.849 11.118 9.712 8.559 7.606 13.578 11.652 10.106 8.851 7.824 14.292 12.166 10.477 9.122 8.022 14.992 12.659 10.828 9.372 8.201 15.678 13.134 11.158 9.604 8.365 16.351 13.590 11.470 9.818 8.514 17.011 14.029 11.764 10.017 8.649 17.658 14.451 12.042 10.201 8.772 18.292 14.857 12.303 10.371 8.883 18.914 15.247 12.550 10.529 8.985 19.523 15.622 12.783 10.675 9.077 20.121 15.983 13.003 10.810 9.161 20.707 16.330 13.211 10.935 9.237 21.281 16.663 13.406 11.051 9.307 21.844 16.984 13.591 11.158 9.370 22.396 17.292 13.765 11.258 9.427 3.147 3.190 0.877 0.862 1.647 1.605 2.322 2.246 2.914 2.798 3.433 3.274 3.889 3.685 4.288 4.039 4.639 4.344 4.946 4.607 5.216 4.833 5.453 5.029 5.660 5.197 5.842 5.342 6.002 5.468 6.142 5.575 6.265 5.668 6.373 5.749 6.467 5.818 6.550 5.877 6.623 5.929 6.687 5.973 6.743 6.011 6.792 6.044 6.835 6.073 6.873 6.097 6.906 6.118 6.935 6.136 6.961 6.152 6.983 6.166 7.003 6.177 6.194 6.424 6.628 6.811 6.974 7.120 7.250 7.366 7.469 7.562 7.645 7.718 7.784 7.843 7.896 7.943 7.984 8.022 8.055 0.847 1.566 2.174 2.690 3.127 3.498 3.812 3.078 4.303 4.494 4.656 4.793 4.910 5.008 5.092 5.162 5.222 5.273 5.316 5.353 5.384 5.410 5.432 5.451 5.467 5.480 5.492 5.502 5.510 5.517 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 4.327 4.439 4.533 4.611 4.675 4.730 4.775 4.812 4.843 4.870 4.891 4.909 4.925 4.937 4.948 4.956 4.964 4.970 4.975 4.979 0.820 1.492 2.042 2.494 2.864 3.167 3.416 3.619 3.786 3.923 4.035 4.127 4.203 4.265 4.315 4.357 4.391 4.419 4.442 4.460 4.476 4.488 4.499 4.507 4.514 4.520 4.524 4.528 4.531 4.534 0.806 1.457 1.981 2.404 2.745 3.020 3.242 3.421 3.566 3.682 3.776 3.851 3.912 3.962 4.001 4.033 4.059 4.080 4.097 4.110 4.121 4.130 4.137 4.143 0.794 1.424 1.923 2.320 2.635 2.885 3.083 3.241 3.366 3.465 3.543 3.606 3.656 3.695 3.726 3.751 3.771 3.786 3.799 3.808 3.816 3.822 3.827 3.831 3.834 3.837 3.839 3.840 3.841 3.842 0.781 1.392 1.868 2.241 2.532 2.759 2.937 3.076 3.184 3.269 3.335 3.387 3.427 3.459 3.483 3.503 3.518 3.529 3.539 3.546 3.551 3.556 3.559 3.562 0.758 1.331 1.766 2.096 2.345 2.534 2.677 2.786 2.868 2.930 2.978 3.013 3.040 3.061 3.076 3.088 3.097 3.104 3.109 3.113 3.116 3.118 3.120 3.121 3.122 3.123 3.123 3.124 3.124 3.124 3.223 3.249 3.268 3.283 3.295 3.304 3.311 3.316 3.320 3.323 3.325 3.327 3.329 3.330 3.331 3.331 3.332 3.332 19 20 21 22 23 24 25 26 27 28 29 30 0.714 1.224 1.589 1.849 2.035 2.168 2.263 2.331 2.379 2.414 2.438 2.456 2.469 2.478 2.484 2.489 2.492 2.494 2.496 2.497 2.498 2.498 2.499 2.499 2.499 2.500 2.500 2.500 2.500 2.500 4.147 3.564 4.151 4.154 4.157 4.159 4.160 3.566 3.567 3.568 3.569 3.569 *P, = (1/1) (1 - 1/(1 + " EXHIBIT 19B.1 Present Value of $1* Periods 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30% 32% 40% 0.781 0.847 0.718 2 3 0.609 0.435 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 0.980 0.961 0.942 0.924 0.906 0.888 0.871 0.853 0.837 0.820 0.804 0.788 0.773 0.758 0.743 0.728 0.714 0.700 0.686 0.673 0.962 0.925 0.889 0.855 0.822 0.790 0.760 0.731 0.703 0.676 0.650 0.625 0.601 0.577 0.555 0.534 0.513 0.494 0.475 0.456 0.439 0.422 0.406 0.390 0.375 0.361 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 0.527 0.497 0.469 0.442 0.417 0.394 0.371 0.350 0.331 0.312 0.294 0.278 0.262 0.247 0.233 0.220 0.207 0.196 0.185 0.174 0.926 0.857 0.794 0.735 0.681 0.636 0.583 0.540 0.500 0.463 0.429 0.397 0.368 0.340 0.315 0.292 0.270 0.250 0.232 0.215 0.199 0.184 0.170 0.158 0.146 0.135 0.125 0.116 0.107 0.099 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 0.350 0.319 0.290 0.263 0.239 0.218 0.198 0.180 0.164 0.149 0.135 0.123 0.112 0.102 0.092 0.084 0.076 0.069 0.063 0.057 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.287 0.257 0.229 0.205 0.183 0.163 0.146 0.130 0.116 0.104 0.093 0.083 0.074 0.066 0.059 0.053 0.047 0.042 0.037 0.033 0.877 0.769 0.675 0.592 0.519 0.456 0.400 0.351 0.308 0.270 0.237 0.208 0.182 0.160 0.140 0.123 0.108 0.095 0.083 0.073 0.064 0.056 0.049 0.043 0.862 0.743 0.641 0.552 0.476 0.410 0.354 0.305 0.263 0.227 0.195 0.168 0.145 0.125 0.108 0.093 0.080 0.069 0.060 0.051 0.044 0.038 0.033 0.028 0.024 0.021 0.018 0.016 0.014 0.012 0.516 0.437 0.370 0.314 0.266 0.225 0.191 0.162 0.137 0.116 0.099 0.084 0.071 0.060 0.051 0.043 0.037 0.031 0.026 0.022 0.019 0.016 0.014 0.011 0.010 0.008 0.007 0.833 0.820 0.806 0.694 0.672 0.650 0.579 0.551 0.524 0.482 0.451 0.423 0.402 0.370 0.341 0.335 0.303 0.275 0.279 0.249 0.222 0.233 0.204 0.179 0.194 0.167 0.144 0.162 0.137 0.116 0.135 0.112 0.094 0.112 0.092 0.076 0.093 0.075 0.061 0.078 0.062 0.049 0.065 0.051 0.040 0.054 0.042 0.032 0.045 0.034 0.026 0.038 0.028 0.021 0.031 0.023 0.017 0.026 0.019 0.014 0.022 0.015 0.011 0.018 0.013 0.009 0.015 0.010 0.007 0.013 0.008 0.006 0.010 0.007 0.005 0.009 0.006 0.004 0.007 0.005 0.003 0.006 0.004 0.002 0.005 0.003 0.002 0.004 0.003 0.002 0.794 0.630 0.500 0.397 0.315 0.250 0.198 0.157 0.125 0.099 0.079 0.062 0.050 0.039 0.031 0.025 0.020 0.016 0.012 0.010 0.008 0.006 0.005 0.004 0.003 0.002 0.002 0.002 0.001 0.001 0.610 0.477 0.373 0.291 0.227 0.178 0.139 0.108 0.085 0.066 0.052 0.040 0.032 0.025 0.019 0.015 0.012 0.009 0.007 0.006 0.004 0.003 0.003 0.002 0.002 0.001 0.001 0.001 0.001 0.769 0.758 0.714 0.592 0.574 0.510 0.455 0.364 0.350 0.329 0.260 0.269 0.250 0.186 0.207 0.189 0.133 0.159 0.143 0.095 0.123 0.108 0.068 0.094 0.082 0.048 0.073 0.062 0.035 0.056 0.046 0.025 0.043 0.036 0.018 0.033 0.027 0.013 0.025 0.021 0.009 0.020 0.016 0.006 0.015 0.012 0.005 0.012 0.009 0.003 0.009 0.007 0.002 0.007 0.005 0.002 0.005 0.004 0.001 0.004 0.003 0.003 0.002 0.001 0.002 0.002 0.000 0.002 0.001 0.000 0.001 0.000 0.001 0.001 0.000 0.001 0.001 0.000 0.001 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.660 0.001 0.038 0.001 0.647 0.634 0.622 0.610 0.598 0.586 0.574 0.563 0.552 0.347 0.333 0.321 0.308 0.033 0.029 0.026 0.022 0.020 *P, = A/(1 + i)