Hilly Mines, Inc., owns the mining rights to a large tract of land in a mountainous area. The tract contains a mineral deposit that the company believes might be commercially attractive to mine and sell. An engineering and cost analysis has been made, and it is expected that the following cash flows would be associated with opening and operating a mine in the area: Cost of equipment required $ 800,000 Annual net cash receipts $ 305,000* Working capital required $ 225,000 Cost of road repairs in ten years $ 66,000 Salvage value of equipment in eleven years $ 200,000 *Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth. The mineral deposit would be exhausted after eleven years of mining. At that point, the working capital would be released for reinvestment elsewhere. The companys required rate of return is 19%. (Ignore income taxes.) Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables. Required: a. Determine the net present value of the proposed mining project. (Negative amount should be indicated by a minus sign. Use the appropriate table to determine the discount factor(s), other intermediate calculations and final answer to the nearest whole dollar.)

Bronzeville Products wants an airplane for use by its corporate staff. The airplane that the company wishes to acquire, a Zephyr II, can be either purchased or leased from the manufacturer. The company has made the following evaluation of the two alternatives:

Purchase alternative. If the Zephyr II is purchased, then the costs incurred by the company would be as follows:

Purchase cost of the plane	$	780,000
Annual cost of servicing, licenses, and taxes	$	8,000
Repairs:
First three years, per year	$	3,000
Fourth year	$	5,000
Fifth year	$	10,000

The plane would be sold after five years. Based on current resale values, the company would be able to sell it for about one-half of its original cost at the end of the five-year period.

Lease alternative.If the Zephyr II is leased, then the company would have to make an immediate deposit of $55,000 to cover any damage during use. The lease would run for five years, at the end of which time the deposit would be refunded. The lease would require an annual rental payment of $130,000 (the first payment is due at the end of Year 1). As part of this lease cost, the manufacturer would provide all servicing and repairs, license the plane, and pay all taxes. At the end of the five-year period, the plane would revert to the manufacturer, as owner.

Bronzeville Products required rate of return is 10%. (Ignore income taxes.)

Required:

1a.

Use the total-cost approach to determine the present value of the cash flows associated with purchase alternative. (Outflows should be indicated with a minus sign. Use the appropriate table to determine the discount factor(s) and round final answers to the nearest dollar amount.) Use the total-cost approach to determine the present value of the cash flows associated with lease alternative. (Outflows should be indicated with a minus sign. Use the appropriate table to determine the discount factor(s) and round final answers to the nearest dollar amount.)

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

Starlight Company has an opportunity to produce and sell a revolutionary new smoke detector for homes.To determine whether this would be a profitable venture, the company has gathered the following data on probable costs and market potential:

a.	New equipment would have to be acquired to produce the smoke detector. The equipment would cost $140,000 and be usable for 16 years. After 16 years, it would have a salvage value equal to 10% of the original cost.
b.	Production and sales of the smoke detector would require a working capital investment of $44,000 to finance accounts receivable, inventories, and day-to-day cash needs. This working capital would be released for use elsewhere after 16 years.
c.	An extensive marketing study projects sales in units over the next 16 years as follows:

Year	Sales in units
1	2,000
2	5,000
3	8,000
4-16	10,000

d.	The smoke detectors would sell for $45 each; variable costs for production, administration, and sales would be $25 per unit.
e.	To gain entry into the market, the company would have to advertise heavily in the early years of sales. The advertising program follows:

Year	Amount of yearly advertising
1-2	$74,000
3	$53,000
4-16	$43,000

f.	Other fixed costs for salaries, insurance, maintenance, and straight-line depreciation on equipment would total $125,500 per year. (Depreciation is based on cost less salvage value.)
g.	The companys required rate of return is 7%. (Ignore income taxes.)

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

Required:
1.	Compute the net cash inflow (cash receipts less yearly cash operating expenses) anticipated from sale of the smoke detectors for each year over the next 16 years.
	The net cash inflow from sales of the device for each year would be:

	Year 1	Year 2	Year 3	Year 4-16
Sales in units	2,000	5,000	8,000	10,000
Sales in dollars
Less variable expenses		-
Contribution margin	0	0	0	0
Less fixed expenses:
Advertising
Other fixed expenses
Total fixed expenses
Net cash inflow (outflow)	$0	$0	$0	$0

2a.

Using the data computed in (1) above and other data provided in the problem, determine the net present value of the proposed investment. (Negative amount should be indicated by a minus sign. Use the appropriate table to determine the discount factor(s) and round final answers to the nearest dollar amount.)

Net present value

2b.

Would you recommend that Starlight Company accept the smoke detector as a new product?

	Yes
	No