Exercise 13-1 Payback Method (LO13-1) The management of Unter Corporation, an architectural design firm, is considering an investment with the following cash flows: Cash Year Investment Inflow $52,000 $ 4,000 $ 6,000 $ 8,000 $16,000 $17,000 $20,000 $18,000 $16,000 $14,000 $13,000 $13,000 00 OU WN Required: 1. Determine the payback period of the investment. 2. Would the payback period be affected if the cash inflow in the last year were several times as large? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the payback period of the investment. (Round your answer to 1 decimal place.) Payback period Required 2 > 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 $175,000, have a fifteen-year useful life, and have a total salvage value of $17,500. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues $200,000 Less operating expenses: Commissions to $80,000 amusement houses Insurance 25,000 Depreciation 10,500 Maintenance 60,000 175,500 Net operating income $ 24,500 Exercise 13-8 Part 1 Required: 1a. Compute the pay back period associated with the new electronic games. 1b. 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. Req 1A Req 18 Compute the pay back period associated with the new electronic games. Payback period Years Req 1B > 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 $175,000, have a fifteen-year useful life, and have a total salvage value of $17,500. The company estimates that annual revenues and expenses associated with the games would be as follows: $200,000 Revenues Less operating expenses: Commissions to amusement houses $80,000 Insurance 25,000 Depreciation 10,500 Maintenance 60,000 Net operating income 175,500 $ 24,500 Exercise 13-8 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 11%, will the games be purchased? Complete this question by entering your answers in the tabs below. Reg 2A Reg 28 Compute the simple rate of return promised by the games. (Round your answer to 1 decimal place. Le 0.123 should be considered as 12.3%) Simple rate of return Req 28 > Exercise 13-5 Preference Ranking (LO13-5) Information on four investment proposals is given below: Investment Proposal A Investment $(280.000) $(140,000) $ (50,000) $ (780,000) required ? Present value of 393,900 192,800 78,100 1,038,100 cash inflows Net present $ 113,900 $ 52,800 $ 28,100 $ 258,100 value Life of the 5 years 7 years 6 years 6 years project 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 Proiect Profitability Index Rank Preference D
