King Arthur, Inc. has assembled the estimates shown below relating to a proposed new project. These estimates are based on a 5 year project life, at the end of which the new equipment would be sold, working capital would revert to other uses in the company, and the product would be discontinued. King Arthur uses a discount rate of 10%. Annual cash sales $450,000 Annual out of pocket cash expenses $340,000 Annual depreciation on new equipment $ 50,000 Initial cost of new equipment $300,000 Salvage value of equipment in 5 years $ 50,000 Working capital requirement $ 60,000 Required: 1. Use the tables (Exhibit 13B-1 and 13B-2) to calculate the net present value of this project. 2. Should the company invest in this equipment? Why? 3. What statement can be made about the internal rate of return for this purchase? Appendix 13B: Present Value Tables EXHIBIT 138-1 Present Value of $1 1 5 - Periods 4% 59 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 22% 23% 24% 2! 0.962 0.952 0,943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.677 0.870 0.862 0.855 0.847 0.840 0.833 0.826 0.020 0.013 0.80G 0.00 2. 0.925 0.907 0.890 0.873 0.857 0.542 0.826 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.594 0.603 0.672 0.661 0.640 0.610 3 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 0.693 0.675 0.658 0,641 0.624 0.609 0.593 0.579 0.564 0.551 0.537 0.24 0.612 4 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0636 0.613 0.592 0.572 9552 0.534 0.516 0.499 0482 0.467 0151 0.437 0423 0110 0.822 0.784 0.747 0.713 0,681 0.650 0.621 0.593 0.567 0.543 0.519 0.497_0476 0.456 0.437 0.419 0,402 0.386 0.370 0.355 0.341 0.12 6 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335 0.319 0.303 0.289 0.275 0.262 7 0.750 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279 0.263 0.249 1.235 0.222 0.210 B 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233 0.218 0.204 0.191 0.179 0.168 9 0.703 0.615 0.592 0.544 0.500 0.460 0.424 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.200 0.194 0.10 0.167 0.165 0.144 0.134 10 0.676 0.614 0.558 0.500 0.463 0.422 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0 208 0.191 0.176 0.162 0.149 0.137 0.126 0.116 0.107 11 0.650 0.585 0.527 0.475 0.429 0.388 0.250 0.317 0 207 0.261 0.237 0.215 0.195 0.178 0.162 0.148 0.135 0.123 0.112 0.101 0094 0006 12 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112 0.102 0.002 0.08 0.076 0.069 13 0.001 0.530 0.469 0.415 0.368 0.326 0.290 0 258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093 0.004 0.075 0.00 0,061 0.055 14 0.577 0.505 0.442 0.308 0.340 0.299 0.263 0.232 0.205 0.181 0.160 0.141 0.125 0.111 0.099 0.008 0.078 0.069 0.0002 0,0016 0.049 0044 15 0.555 0.401 0.417 0.362 0.315 0.275 0.239 0.209 0.183 0.160 0.140 0.123 0.108 0.095 0.014 0.074 0,065 0.057 0.051 00115 0.000 0.035 16 0.534 0,458 0.394 0.339 0.292 0.252 0.218 0.188 0.163 0.141 0.123 0.107 0.093 0.081 0.071 0.062 0.054 0.047 0,012 0,036 0032 0.028 17 0.513 0.436 0.371 0.317 0.270 0.21 0.198 0.170 0.146 0.125 0.108 0.003 0.080 0.00 0.060 0.052 0.045 0.035 034 0,00 0,026 0.023 18 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.153 0.130 0.111 0.095 0,081 0.069 0.059 0.051 0.044 0.038 0.032 0.021 0.021 0.021 0.018 19 0.475 0,396 0.331 0.277 0.232 0.194 0,164 0.138 0.116 0.098 0.033 0.070 0,060 0,051 0.043 0,037 0.031 0,022 0.023 0.20 0.01% 0,014 20 0.456 0.377 0.312 0.258 0.215 0.178 0.149 0.124 0.104 0.087 0.073 0.061 0.051 0.043 0.037 0.031 0.025 0.022 0.010 0,016 0.014 0.012 21 0.439 0.359 0.294 0 242 0.19 0.164 0.135 0.112 0.003 0.077 0.064 0.053 0.044 0.087 0.031 0.026 0,022 0,015 0,015 0,013 0011 0.009 22 0.422 0.342 0.278 0.226 0.184 0.150 0.123 0.101 0.083 0.008 0.056 0.046 0.038 0.032 0.026 0.022 0018 0.015 0.01% 0,011 0.000 0.007 23 0.400 0.326 0.262 0.211 3.170 0.130 0.112 0.091 0.074 0.060 0.049 0.040 0.033 0.027 0,022 0.018 0015 0,012 0,010 0.009 0.007 0.006 24 0.390 0.310 0.247 0.197 0.150 0.125 0.102 0.082 0.066 0053 0.043 0.035 0.028 0.023 0.019 0,015 0,015 0,010 0.000 0.007 0.006 0.005 25 0.375 0.295 0.233 0.184 0.146 0.116 0.092 0.074 0.059 0.047 0.038 0.030 0.024 0.020 0,016 0.013 0.010 0.000 0.007 0.006 0.005 0.004 26 0.361 0.281 0.220 0.172 0.135 0.106 0.034 0.066 0.053 0.042 0.033 0.026 0.021 0.017 0.014 0.011 0.009 0.007 0.006 0,005 0,004 0.003 27 0.347 0.268 0.207 0.161 0.125 0.098 0.076 0.060 0.047 0,037 0.029 0.023 0.018 0.014 0.011 0.009 0.007 0,005 0,005 0,004 0.003 0.002 28 0.333 0.265 0.196 0.150 0.116 0.090 0,069 0.054 0.042 0.033 0.026 0.020 0,016 0012 0.010 0.000 0.000 0.005 0.004 0.003 0.002 0.002 29 0.321 0.243 0.185 0.141 0.107 0.002 0.063 0.048 0.037 0,029 0.022 0.017 0.014 0.011 0.008 0.006 0.005 0.004 0.003 0.002 0.002 0.002 30 0.308 0.231 0.174 0.131 0.099 0.075 0.057 0.044 0.033 0.026 0.020 0.015 0012 0.009 0.007 0.005 0.004 0.003 0.003 0.002 0.002 0.001 40 0.208 0.142 0.097 0.067 0.046 0.032 0.022 0.015 0,011 0.008 0.005 0.004 0.003 0.002 0.001 0.001 0.001 0.000 0.000 0.000 0.000 0.000 EXHIBIT 13B-2 Present Value of Acrulty of $1 in Arreurs 1 Periods 5% 6X 76 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 22% 23% 24% 25% 0.962 0.952 0943 0935 0.926 0.917 0.909 0.901 0.893 0.85 0.877 0.870 0.862 0.855 0.347 0.840 0.833 0.826 0.820 0.813 0.30G 0.800 2. 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.713 1.690 1.668 1647 1.626 1605 1.585 1.566 1.547 1.528 1.509 1.492 1.474 1457 1.440 3 2775 2.723 2.673 2.624 2577 2.531 2487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2140 2.106 2.074 2042 2011 1.981 1952 4 3.530 3.546 2.465 3.387 3.312 3.240 3.170 3.102 3.037 2.974 2914 2.855 2.798 2.743 2.690 2.639 2.509 2.540 2.494 2.448 2.404 2.362 5 4.452 4.329 4212 4.100 3.993 3.890 3.791 3.696 3.605 3.517 3.433 3.352 3.274 3.190 3.127 3.058 2 991 2.926 2864 2.803 2.745 2.689 6 5.242 5.076 4.917 4.767 4.623 4.486 4.355 1.231 4.111 3.000 2.000 2 704 3685 3.589 3.498 3.410 3.326 3.245 3.167 3.092 3.020 2.951 7 5.002 5.786 5.582 5.389 5.206 5.033 4060 4.712 4,564 1423 4200 4.100 4.039 3922 3.812 3.706 3.605 3.508 3.416 3.327 3.242 3.161 8 6.733 6.463 6.210 5.971 5.747 5.535 5.335 5.146 4.068 4.790 4,639 4487 1.344 4.207 4.078 3.954 3.837 3.726 3.619 3.518 3.421 3.329 9 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 5.132 4.946 4.772 4,607 4.451 4.303 4.163 4.031 3.905 3.786 3.673 3,566 3.463 10 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5,809 5650 5.426 5.216 5019 4.833 4.659 4.494 4.339 4.192 4.054 3923 3.799 3.682 3.571 11 8.760 8.306 7.887 7.490 7.139 6.805 6.495 6 207 5,938 5,607 5453 5.234 5.029 4.6 4.666 4.486 4.327 4.177 4.035 3.902 3.776 3.656 12 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.492 6.194 5.918 5.660 5421 5.197 4.8 4.793 4611 4.439 4.278 4.127 3.985 3.851 3.725 13 9.986 9.394 9.853 8.358 7.904 7.487 7.103 6.750 6.424 6.122 8.1142 5.9 6.342 5.110 4.910 4.715 4.533 4.362 4.203 4.053 3912 3.780 14 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.982 6.628 6.302 6.002 5.724 5.46 5.229 6.008 4,802 4.611 4432 4.205 4.108 3.962 3.824 15 11.118 10,380 9.712 9.108 8.559 8,061 7.606 7.191 6811 6.162 6.142 1.847 5.575 5.324 5.002 4.876 4.675 4.489 4.315 4.153 4.001 3.850 16 11652 10,838 10 106 9.447 8851 8.313 7.824 731 6.974 6,604 6.20 1.04 5.660 5405 5.162 4.938 4.730 4.536 4.357 4.189 4.033 3.887 17 12.166 11.274 10.472 9.763 9.122 8.544 3.022 7549 7.120 6.729 6.373 6.012 5.749 5.475 5.222 4.990 4.775 4.576 4.391 4.219 4.059 3910 18 12.669 11.690 10.828 10.059 9.372 8.756 3.201 7.702 7.250 6.840 6.467 6,120 5.818 5,534 5.273 5033 4.812 4.608 4.419 4.243 4.080 3.928 19 13.134 12.005 11.158 10.336 9.604 8.950 8.365 7.639 7366 6.938 6.550 6.100 5,077 5.584 5.316 5.070 4,843 4.635 4.442 4.263 4007 3.042 20 13.590 12.462 11.470 10.594 9.818 9.129 8,514 7053 7.400 7.025 6.623 6.259 5.029 5628 5.353 6.101 4.870 4.657 4460 4.279 4.110 3.954 21 14.029 12021 11.764 10.836 10.017 0.292 8.549 0.025 7.562 7.102 6.607 6.312 5.973 5.665 5.384 5.127 4,091 4.675 4.476 4.292 4.121 3.963 22 14.451 18.163 12.042 11.061 10.201 9.442 772 1.176 2015 7.170 6.743 6,359 6.011 5.696 5.410 5.149 4.909 4.690 4,488 4,302 4.130 3,970 23 14.852 13.480 12.303 11.272 10,371 9.680 8.3 8.200 1./18 7.230 6.792 6.399 6044 5.723 5432 5.167 4925 4.703 4.499 4.311 4.137 3.976 24 15.247 13.799 12.550 11.460 10.529 9.707 R08S 8.340 7.704 7283 6835 6434 6.073 5.746 5451 5.182 4937 4 713 4.507 4318 4.143 3,981 25 15.622 14.094 12.783 11.654 10.675 9.823 9.077 8.422 7.013 7.330 6.873 6.464 6.097 5.766 5.467 5.105 4,948 4.721 4.514 4.323 4.147 3.985 26 15,983 14.375 13.003 11.026 10.810 9.929 9.161 8.40 7.896 7.372 6.006 6.491 6.118 6.703 5,480 5.206 1.956 4.728 4520 4,328 4.151 3,988 27 16,330 14.643 13.2 11 11.987 10.935 10.027 9.237 8548 7.943 7.409 6.935 6.514 6.136 5.798 5.492 5.215 4.964 4.734 4.524 4.332 4,154 3.990 28 16.663 14.898 13.406 12.137 11.051 10.115 9.307 8.602 7.984 7.441 6.961 6.534 6.152 5.810 5.502 5.223 4.970 4.739 4.528 4.335 4.152 3.992 29 16.984 15.141 13.591 12.278 11.158 10.198 9.370 8.660 8.022 7.470 6.083 6.551 6 166 5.820 5510 5.229 4.975 4.743 4.531 4.337 4.159 3994 30 17.292 15.372 13.765 12.109 11.258 10.274 9.427 8.694 8055 7.496 7.003 6.566 6.177 5829 5,517 5 235 4.979 4.746 4 534 4339 4.160 3.995 40 19.793 17.159 15.046 13.332 11.925 10.757 9.779 8,951 8.244 7.634 7 105 6.642 6 233 50715.543 5.258 4.997 4.760 4,544 4.347 4.166 3.999