Part 1)

Text: Ayayai Vita produces a wide range of herbal supplements sold nationwide through independent distributors. In response to an increasing demand for its products, the company is considering the purchase of a new packaging machine to replace the seven-year-old machine currently in use. The new machine will cost $173,800, and installation will require an additional $3,225. The machine has a useful life of 10 years and is expected to have a salvage value of $3,800 at that time. The variable cost to operate the new machine is $11.50 per carton compared to the current machines variable cost of $11.58 per carton, and Ayayai Vita expects to pack 256,000 cartons each year. If the new machine is purchased, Ayayai Vita will avoid a required $11,300 overhaul of the current machine in four years. The current machine has a market value of $13,000. Identify the amount and timing of all cash flows related to the acquisition of the new packaging machine. (Enter negative amounts using a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Part 2)

Text: Margaret wants to buy a car when she graduates from Central University 6 years from now. She believes that she will need $31,000 to buy the car.

(a) Calculate how much money Margaret must put into her savings account today to have $31,000 in 6 years, assuming she can earn 14% compounded annually. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,975.)

(b) Calculate how much money Margaret must put into her savings account today to have $31,000 in 6 years, assuming she can earn 14% compounded semiannually. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,975.)

Part 3)

Text: Blue Spruce Industries is considering the purchase of new equipment costing $1,248,000 to replace existing equipment that will be sold for $181,600. The new equipment is expected to have a $210,000 salvage value at the end of its 5-year life. During the period of its use, the equipment will allow the company to produce and sell an additional 38,400 units annually at a sales price of $29 per unit. Those units will have a variable cost of $14 per unit. The company will also incur an additional $91,500 in annual fixed costs.

Calculate the present value of each cash flow assuming an 8% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971. Enter negative amounts using a negative sign preceding the number e.g. -58,971 or parentheses e.g. (58,971).)

Part 4)

Text: Forbes Festivities, a special events planner, uses a 10 year-old van to deliver decorations and supplies to customers. The company paid $20,000 for the van, which costs $2,500 per month to operate. In 2 years the van will need an extensive overhaul costing $5,300. Colin Forbes, the companys owner, is considering the purchase of a new delivery truck to replace the van. The truck he is looking at will cost $26,000 and has a useful life of 10 years. Based on estimated gas mileage and insurance, Colin calculates that the truck will cost $1,200 per month to operate. It will require a $2,500 overhaul in year 8. Based on current blue-book values, Colin could sell the old van today for $5,400. He estimates that he will be able to sell the new truck for $7,100 at the end of its 10 year life. Identify the amount and timing of the cash flows relevant to Colins decision to replace the delivery van. (If answer is negative then enter with a negative sign preceding the number, e.g. -15,000.)

Part 5)

Text: Chuck has just won the Flyball Lottery. He has two options for receiving his prize. The first option is to accept a $125,000 cash payment today. The second option is to receive $21,500 at the end of each of the next 11 years and a $20,500 lump sum payment in the 12th year. Chuck can invest money at a 7% rate.

(a) Calculate the present value of the two options. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)

(b) If Chuck could invest money at 10%, calculate the present value of the two options. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)

- Which option should he choose?

Part 6)

Text: Martha Gentry won an $14,700,000 lottery and elected to receive her winnings in 30 equal annual installments. After receiving the first 10 installments, Martha and her husband divorced, and the remaining 20 payments became part of the property settlement. The judge who presided over the divorce proceedings awarded one-half interest in the future lottery payments to Martha and the other half to her ex-husband. Following the divorce, Martha decided to sell her interest in the 20 remaining lottery payments to raise the cash needed to open a flower store. An investor has offered Martha $2,595,530.

- What discount rate did the investor use in calculating the purchase price?

Ayayai Vita produces a wide range of herbal supplements sold nationwide through independent distributors. In response to an increasing demand for its products, the company is considering the purchase of a new packaging machine to replace the seven-year- old machine currently in use. The new machine will cost $173,800, and installation will require an additional $3,225. The machine has a useful life of 10 years and is expected to have a salvage value of $3,800 at that time. The variable cost to operate the new machine is $11.50 per carton compared to the current machine's variable cost of $11.58 per carton, and Ayayai Vita expects to pack 256,000 cartons each year. If the new machine is purchased, Ayayai Vita will avoid a required $11,300 overhaul of the current machine in four years. The current machine has a market value of $13,000. Identify the amount and timing of all cash flows related to the acquisition of the new packaging machine. (Enter negative amounts using a negative sign preceding the number eg.-45 or parentheses eg: (45).) Timing Amount Cash Flow Purchase price Installation Salvage of old equipment Salvage of new equipment Variable cost savings Avoided overhaul Margaret wants to buy a car when she graduates from Central University 6 years from now. She believes that she will need $31,000 to buy the car. Click here to view the factor table. (a) Calculate how much money Margaret must put into her savings account today to have $31,000 in 6 years, assuming she can earn 14% compounded annually. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to O decimal place, e.g. 58,975.) $ $ Amount (b) Calculate how much money Margaret must put into her savings account today to have $31,000 in 6 years, assuming she can earn 14% compounded semiannually. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, eg. 58,975.) Amount Blue Spruce Industries is considering the purchase of new equipment costing $1,248,000 to replace existing equipment that will be sold for $181,600. The new equipment is expected to have a $210,000 salvage value at the end of its 5-year life. During the period of its use, the equipment will allow the company to produce and sell an additional 38,400 units annually at a sales price of $29 per unit. Those units will have a variable cost of $14 per unit. The company will also incur an additional $91,500 in annual fixed costs. Click here to view the factor table. Calculate the present value of each cash flow assuming an 8% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to decimal place, eg. 58,971. Enter negative amounts using a negative sign preceding the number eg. -58,971 or parentheses e.g. (58,971).) Cash Flow Present Value Purchase of new equipment Salvage of old equipment Sales revenue Variable costs Additional fixed costs Salvage of new equipment Forbes Festivities, a special events planner, uses a 10 year-old van to deliver decorations and supplies to customers. The company paid $20,000 for the van, which costs $2,500 per month to operate. In 2 years the van will need an extensive overhaul costing $5,300. Colin Forbes, the company's owner, is considering the purchase of a new delivery truck to replace the van. The truck he is looking at will cost $26,000 and has a useful life of 10 years. Based on estimated gas mileage and insurance, Colin calculates that the truck will cost $1,200 per month to operate. It will require a $2,500 overhaul in year 8. Based on current blue-book values, Colin could sell the old van today for $5,400. He estimates that he will be able to sell the new truck for $7,100 at the end of its 10 year life. Identify the amount and timing of the cash flows relevant to Colin's decision to replace the delivery van. (If answer is negative then enter with a negative sign preceding the number, eg.-15,000.) Cash Flow Time Period Purchase price Operating cost savings $ $ $ Overhaul avoided on old van > Overhaul on new van $ Salvage of old van LA > Salvage of new truck GA Overhaul on new van $ Salvage of old van LA > Salvage of new truck GA