Nautical Crations is one of the largest producers of miniatur ships in a bottle. An especially complex part of one of th ships requires special production equipment that is not usful for other products. The company purchasd this equipment early in 2018 for $100,000. It's now January 1, 2020, and th manager of the Model Ships Division, Jeri Finly, is considering replacing the current quipment with new equipment that is more efficient.

The following are last year's average pr-unit manufacturing costs when production was 15,800 ships:

Direct materials	$3.75
Direct labor	5.50
Variable overhead	1.55
Fixed overhead	4.50

The sals representative for the new equipment says, "The new equipment will allow direct labor to b reduced by $3.00 per unit." Finley thinks this estimate is accurat, but also knows that a higher quality of dirct material will be necessary with the new equipment, costing $0.29 more per unit. In addition, fixed overhad costs will increase by $2,000.

The cost of the new equipment is $220,000 and will hav a five-year useful life with an estimated disposal value at that time of $15,000. The current equipment will also last for five mor years. It will have zero disposal valu at that time, but it can b sold immediately for $30,000.

Finley expcts production to continue at 15,800 ships in each of the next five years.

REQUIRED [USE THE PRESENT VALUE TABLES ON PAGE 113 TO COMPUTE NET PRESENT VALUES; BE SURE TO USE THE NEGATIVE SIGN WHEN SUBMITTING NEGATIVE NET PRESENT VALUES]

1. Assuming a discount rate of 5%, what is the net present value if Nautical Creations uses their current equipment to produce the part?

2. Assuming a discount rate of 5%, what is the net present value if Nautical Creations buys the new equipment to produce the part?

Table 1: Present Value of $1.00 1% 2% 3% 4% 5% 7% 8% Period 1 2 3 4 5 6 7 8 0.990 0.980 0.971 0.961 0.951 0.942 0.933 0.923 0.914 0.905 0.896 0.887 0.879 0.870 0.980 0.961 0.942 0.924 0.906 0.888 0.871 0.853 0.837 0.820 0.804 0.788 0.773 0.758 0.971 0.943 0.915 0.888 0.863 0.837 0.813 0.789 0.766 0.744 0.722 0.701 0.681 0.661 0.962 0.925 0.889 0.855 0.822 0.790 0.760 0.731 0.703 0.676 0.952 0.907 0.864 0.823 0.784 0.746 0.711 0.677 0.645 0.614 0.585 0.557 0.530 0.505 6% 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 0.527 0.497 0.469 0.442 0.935 0.873 0.816 0.763 0.713 0.666 0.623 0.582 0.544 0.508 0.475 0.444 0.415 0.388 0.926 0.857 0.794 0.735 0.681 0.630 0.583 0.540 0.500 0.463 0.429 0.397 0.368 0.340 9% 10% 11% 12% 0.917 0.909 0.901 0.893 0.842 0.826 0.812 0.797 0.772 0.751 0.731 0.712 0.708 0.683 0.659 0.636 0.650 0.621 0.593 0.567 0.596 0.564 0.535 0.507 0.547 0.513 0.482 0.452 0.502 0.467 0.434 0.404 0.460 0.424 0.391 0.361 0.422 0.386 0.352 0.322 0.388 0.350 0.317 0.287 0.356 0.319 0.286 0.257 0.326 0.290 0.258 0.229 0.299 0.263 0.232 0.205 13% 14% 15% 0.885 0.877 0.870 0.783 0.769 0.756 0.693 0.675 0.658 0.613 0.592 0.572 0.543 0.519 0.497 0.480 0.456 0.432 0.425 0.400 0.376 0.376 0.351 0.327 0.333 0.308 0.284 0.295 0.270 0.247 0.261 0.237 0.215 0.231 0.208 0.187 0.204 0.182 0.163 0.181 0.1600.141 9 10 1 11 12 13 14 0.650 0.625 0.601 0.577 Table 2: Present Value of an Annuity of $1.00 1% 2% 3% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% Period 1 2 3 4 5 6 7 8 0.990 1.970 2.941 3.902 4.853 5.795 6.728 7.652 8.566 9.471 10.368 11.255 12.134 13.004 0.980 1.942 2.884 3.808 4.713 5.601 6.472 7.325 8.162 8.983 9.787 10.575 11.348 12.106 0.971 1.913 2.829 3.717 4.580 5.417 6.230 7.020 7.786 8.530 9.253 9.954 10.635 11.296 4% 0.962 1.886 2.775 3.630 4.452 5.242 6.002 6.733 7.435 8.111 8.760 9.385 9.986 10.563 0.952 1.859 2.723 3.546 4.329 5.076 5.786 6.463 7.108 7.722 8.306 8.863 9.394 9.899 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 7.887 8.384 8.853 9.295 0.935 1.808 2.624 3.387 4.100 4.767 5.389 5.971 6.515 7.024 7.499 7.943 8.358 8.745 0.926 1.783 2.577 3.312 3.993 4.623 5.206 5.747 6.247 6.710 7.139 7.536 7.904 8.244 0.917 1.759 2.531 3.240 3.890 4.486 5.033 5.535 5.995 6.418 6.805 7.161 7.487 7.786 0.909 0.901 1.736 1.713 2.487 2.444 3.170 3.102 3.791 3.696 4.355 4.231 4.868 4.712 5.335 5.146 5.759 5.537 6.145 5.889 6.495 6.207 6.814 6.492 7.103 6.750 7.367 6.982 0.893 0.885 0.877 0.870 1.690 1.668 1.647 1.626 2.402 2.361 2.322 2.283 3.037 2.974 2.914 | 2.855 3.605 3.517 3.433 3.352 4.111 3.9983.889 3.784 4.564 4.423 4.288 4.160 4.968 4.799 4.639 4.487 5.328 5.132 4.946 | 4.772 5.650 5.426 5.216 5.019 5.938 5.687 5.453 5.234 6.1945.918 5.660 5.421 6.424 6.122 5.8425.583 6.628 6.302 6.002 5.724 9 10 11 12 13 14