Exercise 14-1 (Algo) Payback Method (LO14-1) The management of Unter Corporation, an architectural design firm, is considering an investment with the following cash flow Investment $ 78,000 $ 5,000 Year 1 2 3 4 5 6 7 8 9 10 Cash Inflow $ 5,000 $ 10,000 $ 12,000 $ 15,000 $ 18,000 $ 16,000 $ 14,000 $ 12,000 $ 11,000 $ 11,000 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 years Exercise 14-1 (Algo) Payback Method (LO14-1) The management of Unter Corporation, an architectural design firm, is considering an investment with the following cash flows: Investment $ 78,000 $ 5,000 Year 1 2 3 4 5 6 7 8 9 10 OU WNP Cash Inflow $ 5,000 $ 10,000 $ 12,000 $ 15,000 $ 18,000 $ 16,000 $ 14,000 $ 12,000 $ 11,000 $ 11,000 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 Would the payback period be affected if the cash inflow in the last year were several times as large? Yes ONO Exercise 14-5 (Algo) Preference Ranking (LO14-5) Information on four investment proposals is given below: Investment required Present value of cash inflows Net present value Life of the project $ (270,000) 393,500 $ 123,500 5 years Investment Proposal B D $ (90,000) $ (100,000) $ (2,800,000) 127,100 151,300 3,738,500 $ 37,100 $ 51,300 $ 938,500 7 years 6 years 6 years Required: 1. Compute the profitability index for each investment proposal. (Round your answers to 2 decimal places.) 2. Rank the proposals in terms of preference. Investment Profitability Proposal Index Rank Preference A B D Exercise 14-6 (Algo) Simple Rate of Return Method [LO14-6) The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $55,000. The machine would replace an old piece of equipment that costs $14,000 per year to operate. The new machine would cost $6,000 per year to operate. The old machine currently in use is fully depreciated and 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 i.e. 0.123 should be considered as 12.3%.) 1. Depreciation expense 2. Incremental net operating income 3. Initial investment 4. Simple rate of return % Exercise 14-7 (Algo) Net Present Value Analysis of Two Alternatives (LO14-2] Perit Industries has $140,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project Project A $ 140,000 $ 0 $ 23,000 $ 8,400 6 years Project B $ 0 $ 140,000 $ 35,000 $ 0 6 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discount rate is 15%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 2. Compute the net present value of Project B. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 3. Which investment alternative (if either) would you recommend that the company accept? 1. Net present value project A 2. Net present value project B 3. Which investment alternative (if either) would you recommend that the company accept
