Exercise 12-5 Preference Ranking (LO12-5) Information on four investment proposals is given below. Investment required Present value of cash inflows Net present value Life of the project Investment Proposal A B D $(240,000) $(42,890) S(180, eee) $(1,900,000) 337,300 53,500 271, 800 2,536,709 $ 97,388 $ 15,000 $ 91,800 $ 636,700 5 years 7 years 6 years 6 years Required: 1. Compute the project profitability index for each investment proposal. (Round your answers to 2 decimal places.) 2. Rank the proposals in terms of preference. Investment Proposal Project Profitability Index Rank Preference A B D Exercise 12-6 Simple Rate of Return Method [LO12-6] The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $51,000. The machine would replace an old piece of equipment that costs $13,000 per year to operate. The new machine would cost $6,000 per year to operate. The old machine currently in use could be sold now for a salvage value of $21,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place le. 0.123 should be considered as 12.3%.) 1 2 Depreciation expense Incremental net operating income Initial investment Simple rate of return 3 4. % 2 Required Information Exercise 12-8 Payback period and Simple Rate of Return [LO12-1, LC12-6] [The following information applies to the questions displayed below.) Nick's Novelties, Inc. is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $320,000, have a fifteen-year useful life, and have a total salvage value of $32,000. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues Less operating expenses: Commissions to amusement houses Insurance Depreciation Maintenance Net operating income $230,000 $80, eee 20,000 19,280 se.000 169,200 $ 60,800 Exercise 12-8 Part 1 5 Required: 1a. Compute the payback period associated with the new electronic games. 16. Assume that Nick's Novelties, Inc., will not purchase new games unless they provide a payback period of five years or less. Would the company purchase the new games? Complete this question by entering your answers in the tabs below. Reg 1A Reg 1B Compute the payback period associated with the new electronic games. Payback Period years Required Information Exercise 12-8 Payback Period and Simple Rate of Return (LO12-1, L012-6] [The following information applies to the questions displayed below) Nick's Novelties, Inc., is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $320,000. have a fifteen-year useful life, and have a total salvage value of $32,000. The company estimates that annual revenues and expenses associated with the games would be as follows: $230,000 Revenues Less operating expenses Commissions to amusement houses Insurance Depreciation Maintenance Net operating income $80,000 20,000 19,200 se.eee 169,200 $ 60,00 Exercise 12-8 Part 2 2a. Compute the simple rate of return promised by the games 2b. If the company requires a simple rate of return of at least 14%, will the games be purchased? Complete this question by entering your answers in the tabs below. Red 2A Reg 28 Compute the simple rate of return promised by the games. (Round your answer to 1 decimal place. ... 0.123 should be considered as 12.3%) Simple rate of retum Reg 2B > Exercise 12-14 Comparison of Projects Using Net Present Value [LO12-2] Labeau Products, Ltd., of Perth, Australia, has $25,000 to invest. The company is trying to decide between two alternative uses for the funds as follows: Invest in Invest in Project x Project Investment required $ 25,eee $ 25,000 Annual cash inflows $ 8,000 Single cash inflow at the end of 6 years $ 60,000 Life of the project 6 years 6 years It ces The company's discount rate is 18%. Click here to view Exhibit 128-1 and Exhibit 128-2. to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project X. 2 Compute the net present value of Project Y. 3. Which project would you recommend the company accept? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Compute the net present value of Project X. (Negative amount should be indicated by a minus sign. Round your final answer to the nearest whole dollar amount.) Net present value Required 2 > Exercise 12-14 Comparison of Projects Using Net Present Value (L012-2] Labeau Products, Ltd. of Perth, Australia, has $25,000 to invest. The company is trying to decide between two alternative uses for the funds as follows: Investment required Annual cash inflows Single cash inflow at the end of 6 years Life of the project Invest in Invest in Project X Project $ 25,000 $ 25,000 $ 8,000 $ 60,000 6 years 6 years + ces The company's discount rate is 18%. Click here to view Exhibit 128-1 and Exhibit 12B-2. to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project X 2. Compute the net present value of Project Y. 3. Which project would you recommend the company accept? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Compute the net present value of Project Y. (Negative amount should be indicated by a minus sign. Round your final answer to the nearest whole dollar amount.) Net present value