Letty's Antiques is evaluating alternative alarm systems for its factory. Two suppliers have made bids on the contract. The bids contrast sharply in terms of cash flows. Both bids are for a 4-year contract. Ignore taxes. REQUIRED: 1. Using the net present value method with a 12% discount rate, recommend the lower cost alternative to Willie. Which one? 2. Comment on the following non-quantified variables the antique company may want to consider: a. What is the risk of loss? b. Are any cost estimates subject to change? c. Which vendor has the better reputation for service? d. What is the response time in an emergency? e. What is the quality of installation and training? f. How easy is each system to use? g. Can the system be upgraded at low cost? h. How is each system monitored? Exercise 6-17 Kelly Company designs and makes office equipment. The sales manager is trying to decide whether to introduce a new swivel chair. The chair will sell for P1,000 and have variable cost of P400. Volume is expected to be 1,000 units per year for 5 years. Additional fixed cash operating costs will be P200,000 per year. Additional machinery costing P1,000,000 is needed. The new machinery will have a 5 -year life and have no salvage value. Kelly uses straight-line depreciation . Kelly's tax rate is 30%, and the company uses a "hurdle rate" of 15%. REQUIRED: 1. What will be the annual after-tax cash inflow? 2. What is the net present value of the machinery investment? Exercise 6-18 Zinia Co. purchased a new machine for P250,000 to expand capacity. Sales are expected to increase by 20%. The only additional fixed expense is the depreciation on the new machine (straight-line over 5 years with no salvage value). The income statement for the past year is: REQUIRED: 1. What is the expected annual net cash inflow after taxes from the use of the new machine? 2. Find the net present value using a hurdle rate of 15% and the payback period. Letty's Antiques is evaluating alternative alarm systems for its factory. Two suppliers have made bids on the contract. The bids contrast sharply in terms of cash flows. Both bids are for a 4-year contract. Ignore taxes. REQUIRED: 1. Using the net present value method with a 12% discount rate, recommend the lower cost alternative to Willie. Which one? 2. Comment on the following non-quantified variables the antique company may want to consider: a. What is the risk of loss? b. Are any cost estimates subject to change? c. Which vendor has the better reputation for service? d. What is the response time in an emergency? e. What is the quality of installation and training? f. How easy is each system to use? g. Can the system be upgraded at low cost? h. How is each system monitored? Exercise 6-17 Kelly Company designs and makes office equipment. The sales manager is trying to decide whether to introduce a new swivel chair. The chair will sell for P1,000 and have variable cost of P400. Volume is expected to be 1,000 units per year for 5 years. Additional fixed cash operating costs will be P200,000 per year. Additional machinery costing P1,000,000 is needed. The new machinery will have a 5 -year life and have no salvage value. Kelly uses straight-line depreciation . Kelly's tax rate is 30%, and the company uses a "hurdle rate" of 15%. REQUIRED: 1. What will be the annual after-tax cash inflow? 2. What is the net present value of the machinery investment? Exercise 6-18 Zinia Co. purchased a new machine for P250,000 to expand capacity. Sales are expected to increase by 20%. The only additional fixed expense is the depreciation on the new machine (straight-line over 5 years with no salvage value). The income statement for the past year is: REQUIRED: 1. What is the expected annual net cash inflow after taxes from the use of the new machine? 2. Find the net present value using a hurdle rate of 15% and the payback period