Eley Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 44,000 units per month is as follows:

Direct materials

$44.60

Direct labor

$8.50

Variable manufacturing overhead

$1.50

Fixed manufacturing overhead

$18.10

Variable selling & administrative expense

$2.60

Fixed selling & administrative expense

$12

The normal selling price of the product is $94.10 per unit.

An order has been received from an overseas customer for 2,400 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.60 less per unit on this order than on normal sales.

Direct labor is a variable cost in this company.

Suppose there is not enough idle capacity to produce all of the units for the overseas customer and accepting the special order would require cutting back on production of 900 units for regular customers. The minimum acceptable price per unit for the special order is closest to:

14.

(Ignore income taxes in this problem.) Buy-Rite Pharmacy has purchased a small auto for delivering prescriptions. The auto was purchased for $34,000 and will have a 6-year useful life and a $4,600 salvage value. Delivering prescriptions (which the pharmacy has never done before) should increase gross revenues by at least $32,600 per year. The cost of these prescriptions to the pharmacy will be about $26,200 per year. The pharmacy depreciates all assets using the straight-line method. The payback period for the auto is closest to:

19.

(Ignore income taxes in this problem.) The following data pertain to an investment proposal:

Cost of the investment

$56,000

Annual cost savings

$16,000

Estimated salvage value

$6,000

Life of the project

5 years

Discount rate

10%

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using table.

The net present value of the proposed investment is closest to: (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)

20.

The management of Urbine Corporation is considering the purchase of a machine that would cost $360,000 would last for 10 years, and would have no salvage value. The machine would reduce labor and other costs by $50,000 per year. The company requires a minimum pretax return of 9% on all investment projects. (Ignore income taxes in this problem.)

Click here to view Exhibit 13B-1 and Exhibit 13B-2 to determine the appropriate discount factor(s) using tables.

The net present value of the proposed project is closest to: (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)

21.

The management of Londo Corporation is investigating buying a small used aircraft to use in making airborne inspections of its above-ground pipelines. The aircraft would have a useful life of 4 years. The company uses a discount rate of 10% in its capital budgeting. The net present value of the investment, excluding the intangible benefits, is $316,720. (Ignore income taxes in this problem)

Click here to view Exhibit 13B-2 to determine the appropriate discount factor(s) using tables.

How large would the annual intangible benefit have to be to make the investment in the aircraft financially attractive? (Round discount factor(s) to 3 decimal places and final answer to the nearest dollar amount.)

23.

Blaine Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $120,000 and would have a fifteen-year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $14,000 per year to operate and maintain, but would save $44,000 per year in labor and other costs. The old machine can be sold now for scrap for $12,000. The simple rate of return on the new machine is closest to: (Ignore income taxes in this problem.)

24.

(Ignore income taxes in this problem.) Baldock Inc. is considering the acquisition of a new machine that costs $464,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash flows that would be produced by the machine are:

Incremental Net

Operating Income

Incremental Net Cash Flows

Year 1

$72,000

$153,000

Year 2

$78,000

$157,000

Year 3

$89,000

$178,000

Year 4

$52,000

$154,000

Year 5

$94,000

$156,000

Assume cash flows occur uniformly throughout a year except for the initial investment.

The payback period of this investment is closest to:

25.

Shields Company has gathered the following data on a proposed investment project: (Ignore income taxes in this problem.)

Investment required in equipment

$690,000

Annual cash inflows

$76,000

Salvage value

$0

Life of the investment

16 years

Required rate of return

6%

The company uses straight-line depreciation. Assume cash flows occur uniformly throughout a year except for the initial investment.

The payback period for the investment is closest to: