nces Toying With Nature wants to take advantage of children's fascination with dinosaurs by adding several scale-model dinosaurs to its existing product line. Annual sales of the dinosaurs are estimated at 80,000 units at a price of $6 per unit. Variable manufacturing costs are estimated at $2.50 per unit, incremental fixed manufacturing costs (excluding depreciation) at $45,000 annually, and additional selling and general expenses related to the dinosaurs at $51,000 annually. To manufacture the dinosaurs, the company must invest $350,000 in design molds and special equipment. Since toy fads wane in popularity rather quickly, Toying With Nature anticipates the special equipment will have a three-year service life with only a $20,000 salvage value. Depreciation will be computed on a straight-line basis. All revenue and expenses other than depreciation will be received or paid in cash. The company's combined federal and state income tax rate is 40 percent. Required: a. Prepare a schedule showing the estimated increase in annual net income from the planned manufacture and sale of dinosaur toys. b. Compute the annual net cash flows expected from this project. c. Compute the following. Assume discounted at an annual rate of 15 percent. Use Exhibits 26-3 and 26-4 where necessary. TOYING WITH NATURE Schedule of Estimated Net Income nces Less estimated incremental costs: Income before income taxes Estimated increase in annual net income EXHIBIT 26-3 Present Value of $1 Payable in n Periods Number of Periods Present Value of $1 Due in n Periods Discount Rate 1% 11% (n) 5% 6% 8% 10% 12% 15% 20% 990 985 952 943 926 909 893 870 2 833 980 971 907 890 857 826 797 756 694 3 971 956 864 $40 794 751 712 658 579 4 961 942 823 792 735 683 .636 572 482 $ 951 928 784 747 681 621 567 497 402 6 942 915 746 705 630 564 507 432 335 7 933 901 .711 .665 583 513 452 376 279 8 923 888 677 627 540 467 404 327 233 9 914 875 645 592 500 424 361 284 194 3235 10 905 862 614 558 463 386 322 247 162 20 820 742 377 3121 215 149 104 061 026 24 788 700 310 247 158 102 066 035 2013 36 699 585 173 123 063 032 017 007 001 EXHIBIT 26-4 Present Value of a $1 Annuity Receivable Each Period for n Periods Number of Present Value of $1 to Be Received Periodically for n Periods Discount Rate Periods 1% 11% 5% (n) 6% 8% 10% 12% 15% 20% 0.990 0.985 0.952 0.943 0.926 0.909 0.893 0.870 0.833 2 1.970 1.956 1.859 1.833 1.783 1.736 1.690 1.626 1.528 3 2.941 2.912 2.723 2.673 2.577 2.487 2.4021 2.283 2.106 3.902 3.854 3.546 3.465 3.312 3.170 3.037 2.855- 2.589 4.853 4.783 4.329 4.212 3.993 3.791 3.605 3.352 2.991 6 5.795 5.697 5.076 4.917 4.623 4.355 4111 3.784 3.326 7 6.728 6.598 5.786 5.582 5.206 4.868 4.564 4.160 3.605 8 7.652 7.486 6.463 6.210 5.747 5.335 4.968 4.487 3.837 9 8.566 8.361 7.108 6.802 6.247 5.759 5.328 4.772 4.031 10 9.471 9.222 7.722 7.360 6.710 6.145 5.650 5.019 4.192 20 18.046 17.169 12.462 11.470 9818 8.514 7.469 6.259 4.870 24 21.243 20.030 13.799 12.550 10.529 8.985 7.784 6434 4937 36 30.105 27.661 16.547 14.621 11.717 9.677 8.192 6.623 4.993