CH7 CAPITAL BUDGETING Question 3 Scarlett is considering the purchase of a new Wolf gas range by Sub-Zero Group, Inc. to increase the quality of the food served in her restaurant. It will also enhance the cooking experience for her and her chefs, as they won't have to fuss with the finicky electric burners they currently use. However, the new range is expensive. It will cost $10,180 to buy and properly install. On the upside, it should last for at least 7 years, at which time Scarlett may consider trading it in for another new range. While her operating costs will not decrease as a result of this purchase, Scarlett will be able to generate additional gross margin of at least $1,530 in the first year. After that, she expects the additional gross margin to grow by 10% each year for the next 4 years, at which point it will become stable for the remainder of the 7-year life. She believes the new range will be worth $980 at the end of this 7-year period. Her current range can be salvaged today for $250. Click here to view the factor table (a) Calculate the discounted payback period for this range (using before-tax cash flows), assuming Scarlett's cost of capital averages 6%. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answer to 2 decimal places e.g. 15.25.) Discounted payback period years Present Value of 1 (Present Value of a Single Sum) Present value of a single sum (PV) Future value = (1+R) N 6% 8% 9% (n) 4% (n)Periods 2% 21% 3% 5% 10% 11% 12% 15% Periods .98039 .97561 .97087 .96154 .95238 .94340 .92593 .91743 .90909 .90090 .89286 .86957 .96117 .95181 .94260 .92456 .90703 .89000 .85734 .84168 .82645 .81162 .79719 .75614 .94232 .92860 .91514 .88900 .86384 .83962 .79383 .77218 .75132 .73119 .71178 .65752 .92385 .90595 .88849 .85480 .82270 .79209 .73503 .70843 .68301 .65873 .63552 .57175 .90573 .88385 .86261 .82193 .78353 .74726 .68058 .64993 .62092 .59345 .56743 .49718 3 618 7 10 .88797 .86230 .83748 .79031 .74622 .70496 .63017 .59627 .87056 .84127 .81309 .75992 .71068 .66506 .58349 .54703 .51316 .48166 .45235 .37594 .85349 .82075 .78941 .73069 .67684 .62741 .54027 .50187 .46651 .43393 .40388 .32690 .83676 .80073 .76642 .70259 .64461 .59190 .50025 .46043 .42410 .39092 .36061 .28426 .82035 .78120 .74409 .67556 .61391 .55839 .46319 .42241 .38554 .35218 .32197 .24719 .56447 .53464 .50663 .43233 7 9 10 11 12 13 14 15 .80426 .76214 .72242 .64958 .58468 .52679 .78849 .74356 .70138 .62460 .55684 .49697 .39711 .35554 .31863 .28584 .25668 .18691 .77303 .72542 .68095 .60057 .53032 .46884 .36770 .32618 .28966 .25751 .22917 .16253 .75788 .70773 .66112 .57748 .50507 .44230 .34046 .29925 .26333 .23199 .20462 .14133 .74301 .69047 .64186 .55526 .48102 .41727 .31524 .27454 .23939 .20900 .18270 .12289 .42888 .38753 .35049 .31728 .28748 .21494 11 12 13 14 15 678220 16 17 18 19 .72845 .67362 .62317 .53391 .45811 .39365 .29189 .25187 .21763 .18829 .16312 .10687 .71416 .65720 .60502 .51337 .43630 .37136 .27027 .23107 .19785 .16963 .14564 .09293 .49363 .70016 .64117 .58739 .41552 35034 .25025 .21199 .17986 .15282 .13004 .08081 .68643 .62553 .57029 .47464 .39573 .33051 .23171 .19449 .16351 .13768 .11611 .07027 .67297 .61027 .55368 .45639 .37689 .31180 .21455 .17843 .14864 .12403 .10367 .06110 16 17 18 19 20 21 22 23 24 .65978 .59539 .53755 .43883 .35894 .29416 .19866 .16370 .13513 .11174 .09256 .05313 .64684 .58086 .52189 .42196 .34185 .27751 .18394 .15018 .12285 .10067 .08264 .04620 .63416 .56670 .50669 .40573 .32557 .26180 .17032 .13778 .11168 .09069 .07379 .04017 .62172 .55288 .49193 .39012 .31007 .24698 .15770 .12641 .10153 .08170 .06588 .03493 21 22 23 24 25 .60953 .53939 .47761 .37512 .29530 .23300 .14602 .11597 .09230 .07361 .05882 .03038 25 Future value of a single sum (FV Present value x (n) Periods 2% 21% 3% 1 1.02000 1.02500 1.03000 2 1.04040 1.05063 3 1.06121 4 1.06090 1.07689 1.09273 1.08243 1.10381 1.12551 5 1.10408 1.13141 1.15927 4% 5% 6% 8% 1.04000 1.05000 1.06000 1.08000 1.08160 1.10250 1.12360 1.16640 1.12486 1.15763 1.19102 1.25971 1.16986 1.21551 1.26248 1.36049 1.21665 1.27628 1.33823 1.46933 9% 10% 11% 12% 1.09000 1.10000 1.11000 1.12000 15% (n) Period 1.15000 1 1.18810 1.21000 1.23210 1.25440 1.29503 1.33100 1.36763 1.40493 1.41158 1.46410 1.51807 1.57352 1.53862 1.61051 1.68506 1.76234 1.32250 2 1.52088 3 1.74901 4 2.01136 5 67890 1.12616 1.19509 1.24886 10 1.21899 1.15969 1.19405 1.14869 1.18869 1.22987 1.17166 1.21840 1.26677 1.36857 1.30477 1.42331 1.28008 1.34392 1.48024 1.26532 1.34010 1.31593 1.40710 1.47746 1.55133 1.62889 1.41852 1.58687 1.67710 1.77156 1.87041 1.97382 1.50363 1.71382 1.82804 1.94872 2.07616 2.21068 1.59385 1.85093 1.99256 2.14359 2.30454 2.47596 1.68948 1.99900 2.17189 2.35795 2.55803 2.77308 1.79085 2.15892 2.36736 2.59374 2.83942 3.10585 2.31306 6 2.66002 7 3.05902 8 3.51788 9 4.04556 10 11 1.24337 1.31209 1.38423 1.53945 1.71034 12 13 14 15 2345 1.26824 1.29361 1.37851 1.31948 1.41297 1.34587 1.44830 1.34489 1.42576 1.46853 1.51259 1.73168 1.60103 1.79586 1.89830 2.01220 1.66507 1.88565 2.13293 1.97993 1.55797 1.80094 2.07893 2.33164 2.51817 2.71962 2.26090 2.93719 2.39656 3.17217 2.58043 2.85312 3.15176 3.47855 2.81267 3.13843 3.49845 3.89598 3.06581 3.45227 3.88328 4.36349 3.34173 3.79750 4.31044 4.88711 3.64248 4.17725 4.78459 5.47357 4.65239 11 5.35025 12 6.15279 13 7.07571 14 8.13706 15 17 19 20 678 92 16 1.37279 1.48451 1.60471 1.87298 2.18287 2.54035 3.42594 3.97031 4.59497 5.31089 18 1.40024 1.52162 1.65285 1.94790 2.29202 2.69277 1.42825 1.55966 1.70243 2.02582 2.40662 1.45681 1.59865 1.75351 2.10685 2.52695 1.48595 1.63862 1.80611 2.19112 2.65330 3.70002 4.32763 5.05447 2.85434 3.99602 4.71712 5.55992 5.89509 6.54355 6.13039 9.35762 6.86604 10.76126 7.68997 12.37545 3.02560 4.31570 5.14166 3.20714 4.66096 5.60441 6.11591 7.26334 8.61276 14.23177 6.72750 8.06231 9.64629 16.36654 676520 16 17 18 19 21 22 23 1.54598 1.57690 24 25 1.64061 1.85394 2.09378 2.66584 1.51567 1.67958 1.86029 2.27877 2.78596 3.39956 5.03383 1.72157 1.91610 2.36992 2.92526 3.60354 5.43654 1.76461 1.97359 2.46472 3.07152 3.81975 5.87146 1.60844 1.80873 2.03279 2.56330 3.22510 4.04893 6.34118 3.38635 4.29187 6.84847 6.10881 7.40025 8.94917 10.80385 18.82152 6.65860 8.14028 7.25787 8.95430 11.02627 13.55235 24.89146 7.91108 9.84973 12.23916 15.17863 28.62518 8.62308 10.83471 13.58546 17.00000 32.91895 9.93357 12.10031 21.64475 2221 21 22 23 24 25 Future value of an ordinary annuity (FVA) = Payment [(1 + R) N 1] R - (n) Periods 2% 21% 3% 4% 5% 6% 8% 9% 10% 11% 12% 15% (n) Periods 1 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1 2 3 2.02000 2.02500 3.06040 2.03000 2.04000 2.05000 2.06000 2.08000 2.09000 2.10000 2.11000 2.12000 2.15000 2 3.07563 3.09090 3.12160 3.15250 3.18360 3.24640 3.27810 3.31000 3.34210 3.37440 3.47250 3 4 4.12161 4.15252 4.18363 4.24646 4.31013 4.37462 4.50611 4.57313 4.64100 4.70973 4.77933 4.99338 5 5.20404 5.25633 5.30914 5.41632 5.52563 5.63709 5.86660 5.98471 6.10510 6.22780 6.35285 6.74238 5 6 6.30812 6.38774 6.46841 6.63298 6.80191 6.97532 7.33592 7.52334 7 7.43428 7.54743 7.66246 7.89829 8.14201 8.39384 8 8.58297 8.73612 8.89234 9.21423 9.54911 9.89747 9 9.75463 9.95452 10.15911 10.58280 11.02656 10 10.94972 11.20338 11.46338 12.00611 12.57789 11.49132 13.18079 8.92280 9.20044 10.63663 11.02847 12.48756 13.02104 14.48656 15.19293 7.71561 7.91286 8.11519 9.48717 9.78327 10.08901 11.43589 11.85943 12.29969 13.57948 14.16397 14.77566 15.93743 16.72201 17.54874 8.75374 6 11.06680 7 13.72682 8 16.78584 9 20.30372 10 11 12 13 14 15 12.16872 12.48347 12.80780 13.48635 13.41209 13.79555 14.19203 15.02581 14.68033 15.14044 15.61779 16.62684 15.97394 16.51895 17.08632 18.29191 17.29342 17.93193 18.59891 20.02359 14.20679 14.97164 16.64549 15.91713 16.86994 18.97713 17.71298 18.88214 21.49530 19.59863 21.01507 24.21492 21.57856 23.27597 27.15211 17.56029 20.14072 22.95339 26.01919 29.36092 18.53117 19.56143 20.65458 21.38428 22.71319 24.13313 24.52271 26.21164 28.02911 27.97498 30.09492 32.39260 31.77248 34.40536 37.27972 24.34928 11 29.00167 12 34.35192 13 40.50471 14 47.58041 15 16 18.63929 19.38022 20.15688 21.82453 17 18 20.01207 20.86473 21.76159 23.69751 21.41231 22.38635 23.41444 25.64541 19 22.84056 23.94601 25.11687 27.67123 30.53900 20 24.29737 25.54466 26.87037 29.77808 33.06595 23.65749 25.67253 30.32428 33.00340 25.84037 28.21288 33.75023 36.97371 28.13238 30.90565 37.45024 41.30134 33.75999 41.44626 46.01846 36.78559 45.76196 51.16012 35.94973 39.18995 42.75328 40.54470 44.50084 48.88367 45.59917 50.39593 55.74972 51.15909 56.93949 63.43968 57.27500 64.20283 72.05244 55.71747 16 65.07509 17 75.83636 18 88.21181 102.44358 19 20 21 25.78332 27.18327 28.67649 31.96920 35.71925 22 27.29898 28.86286 30.53678 34.24797 38.50521 23 28.84496 30.58443 32.45288 36.61789 41.43048 39.99273 43.39229 46.99583 24 30.42186 32.34904 34.42647 39.08260 44.50200 50.81558 25 32.03030 34.15776 36.45926 41.64591 47.72710 54.86451 50.42292 56.76453 64.00250 72.26514 81.69874 118.81012 55.45676 62.87334 71.40275 81.21431 92.50258 137.63164 60.89330 69.53194 79.54302 91.14788 104.60289 159.27638 66.76476 76.78981 88.49733 102.17415 118.15524 184.16784 73.10594 84.70090 98.34706 114.41331 133.33387 212.79302 222225 21 23 24