exercise 16-35 just Required 1 & 2 only 10% and 12 %

and 16-36 req 1 & 2

Exercise 16-35 Payback Period: Even Cash Flows (Section 3) (LO 16-1, 16-6, 15-8) The management of Niagra National Bank is considering an investment in automatic teller machines. The machines would cost $124.200 and have a useful life of seven years. The bank's controller has esti- mated that the automatic teller machines will save the bank $27,000 after taxes during each year of their life (including the depreciation tax shield). The machines will have no salvage value, Required: 1. Compute the payback period for the proposed investment 2. Computo the net present value of the proposed investment assuming an after-tax hurdlo rato of: (a) 10 percent, (b) 12 percent, and (c) 14 percent. 3. What can you conclude from your answers to requirements (1) and (2) about the limitations of the payback method? 4. Bulld a spreadsheet: Construct an Excel spreadsheet to solve requirements (1) and (2) above. Show how the solution will change if the following information changes the machines would cost $134.400, and the annual savings amount to $28,000. 36 Allegience Insurance Company's management is considering an advertising program that would require Payback Period, Uneven Exercise an initial expenditure of S165.500 and bring in additional sales over the next five years. The projected Cash Flows (Section 3) additional sales revenue in year I is $75,000, with associated expenses of $25.000 The additional sales (L016-1, 16-6, 16-3) revenue and expenses from the advertising program are projected to increase by 10 percent each year, Allegience's tax rate is 40 percent. (Hint: The S165.500 advertising cost is an expense.) Required: 1. Compute the payback period for the advertising program. 2. Calculate the advertising program's net present value, assuming an after-tax hurlue rate of 10 percent. Exercise 16-37