Cost of Customer Returns

Existing machine

Calculation

Price of Yarn Sold

$5.0

Reimbursement cost

$25.0

Liability multiplier

5.0

(25/5)

Returns as % of Volume

1.50%

Returns as % of Revenue

7.50%

(5 x 1.5%)

Returns as cost/lb

$0.077

(7.5% x $1.0235/lb)

Zinser

Calculation

Price of Yarn Sold

$10.0

Reimbursement cost

$75.0

Liability multiplier

7.5

(75/10)

Returns as % of Volume

1.00%

Returns as % of Revenue

7.50%

(7.5 x 1.0%)

Returns as cost/lb

$0.084

(7.5% x $1.0235/lb x 110%)

$0.0077

		Consolidated Balance Sheets for the Fiscal Years
		Ending December, 31 1999-2002
		($ thousands)
	1999	2000	2001	2002
Assets
Cash and cash equivalents	$1,144	$5,508	$2,192	$1,973
Accounts receivable, net	17,322	11,663	20,390	26,068
Inventories	34,778	33,155	31,313	33,278
Other current assets	2,774	1,922	712	2,378
Total Current Assets	$56,018	$52,247	$54,608	$63,697
Property and Equipment
Land	2,654	2,594	2,516	2,505
Buildings	32,729	31,859	30,308	30,427
Machinery and equipment	230,759	220,615	197,889	190,410
Gross PP&E	266,142	255,068	230,713	223,342
Less accumulated depreciation	(147,891)	(147,104)	(146,302)	(154,658)
Net PP&E	118,250	107,964	84,411	68,684
Goodwill	1,180	1,180	1,180	1,180
Other non-current assets	3,516	3,499	2,824	2,430
Total Assets	$178,965	$164,890	$143,023	$135,991
Liabilities
Accounts payable	12,236	7,693	9,667	10,835
Accrued compensation and benefits	4,148	3,712	4,176	4,730
Accrued interest	1,830	1,090	961	929
Other accrued expenses	4,083	3,914	3,881	3,657
Current portion of long-term debt	1,009	1,730	0	0
Total Current Liabilities	$23,306	$18,139	$18,685	$20,151
Long-term debt	66,991	66,991	58,000	58,000
Other long-term liabilities	16,566	14,081	11,776	10,297
Total Liabilities	$106,863	$99,211	$88,461	$88,448
Shareholder's equity
Common stock, par $0.01	50	50	50	50
Capital surplus	15,868	15,678	15,668	15,668
Retained earnings	56,184	49,951	38,845	31,825
Total Shareholders' Equity	$72,102	$65,679	$54,563	$47,543
Total Liabilities and Shareholders' Equity	$178,965	$164,890	$143,023	$135,991

Calculate the NPVs for the existing machine and the zeiser machine.