Pack & Carry is debating whether to invest in new equipment to manufacture a line of high-quality luggage. The new equipment would cost $900,000, with an estimated four-year life and no salvage value. The estimated annual operating results with the new equipment are as follows. (Use Exhibit 26-4.)

Revenue from sales of new luggage				$	985,000
Expenses other than depreciation	$	675,000
Depreciation (straight-line basis)		225,000			900,000
Increase in net income from the new line				$	85,000

All revenue from the new luggage line and all expenses (except depreciation) will be received or paid in cash in the same period as recognized for accounting purposes.

a. Compute the annual cash flows for the investment in the new equipment to produce the new luggage line.

b. Compute the payback period for the investment in the new equipment to produce the new luggage line. (Round your answer to 1 decimal place.)

c. Compute the return on average investment for the investment in the new equipment to produce the new luggage line. (Round your percentage answer to 1 decimal place (i.e., 12.34 to be entered as 12.3).)

d. Compute the total present value of the expected future annual cash inflows, discounted at an annual rate of 10 percent for the investment in the new equipment to produce the new luggage line. (Round your "PV factor" to 3 decimal places and final answer to the nearest dollar amount.)

e. Compute the net present value of the proposed investment discounted at 10 percent for the investment in the new equipment to produce the new luggage line. (Round your "PV factor" to 3 decimal places and final answer to the nearest dollar amount.)

Present Value of $1 to Be Received Periodically for n Periods Discount Rate Number of Periods (n) EXHIBIT 26-4 Present Value of a $1 Annuity Receivable Each Period for n Periods 1% 112% 5% 6% 8% 10% 12% 15% 20% 1 2 3 4 5 6 7 0.990 1.970 2.941 3.902 4.853 5.795 6.728 7.652 8.566 9.471 18.046 21.243 30.108 0.985 1.956 2.912 3.854 4.783 5.697 6.598 7.486 8.361 9.222 17.169 20.030 27.661 0.952 1.859 2.723 3.546 4.329 5.076 5.786 6.463 7.108 7.722 12.462 13.799 16.547 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 11.470 12.550 14.621 0.926 0.909 0.893 0.870 0.833 1.783 1.736 1.690 1.626 1.528 2.577 2.487 2.402 2.283 2.106 3.312 3.170 3.037 2.855 2.589 3.993 3.791 3.605 3.352 2.991 4.623 4.355 4.111 3.784 3.326 5.206 4.868 4.564 4.160 3.605 5.747 5.335 4.968 4.487 3.837 6.247 5.759 5.328 4.772 4.031 6.710 6.145 5.650 5.0 19 4.192 9.818 8.514 7.469 6.259 4.870 10.529 8.985 7.784 6.434 4.937 11.717 9.677 8.192 6.623 4.993 8 9 10 20 24 36