Please answer 1 -3

1.

Arrowhead Inc. is considering an investment in new equipment that will be used to manufacture a mobile communications product. The product is expected to generate additional annual sales of 5,400 units at $309.00 per unit. The equipment has a cost of $602,600, residual value of $45,400, and an 8-year life. The equipment only can be used to manufacture the product. The cost to manufacture the product is shown next.

Cost per unit:
	Direct labor		$53.00
	Direct materials		207.00
	Factory overhead (including depreciation)		35.20
		Total cost per unit	$295.20

Determine the average rate of return on the equipment. __________%

2.

Kentucky Grill has computed the net present value for capital expenditures for the Somerset and Whitley City locations using the net present value method. Relevant data related to the computation are as follows:

	Somerset		Whitley City
Total present value of net cash flow	$255,780		$320,330
Amount to be invested	261,000		311,000

a. Determine the present value index for each proposal. Round to two decimal places.

	Present Value Index
Somerset Location	fill in the blank 1
Whitley City Location	fill in the blank 2

3.

Present Value of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	0.890	0.826	0.797	0.756	0.694
3	0.840	0.751	0.712	0.658	0.579
4	0.792	0.683	0.636	0.572	0.482
5	0.747	0.621	0.567	0.497	0.402
6	0.705	0.564	0.507	0.432	0.335
7	0.665	0.513	0.452	0.376	0.279
8	0.627	0.467	0.404	0.327	0.233
9	0.592	0.424	0.361	0.284	0.194
10	0.558	0.386	0.322	0.247	0.162

Each product requires an investment of $240,000. A rate of 15% has been selected for the net present value analysis.

Required:

1a. Compute the cash payback period for each project.

	Cash Payback Period
Primitive Camping	2 years
Lakeside Fishing	2 years

1b. Compute the net present value. Use the present value of $1 table presented above. If required, use the minus sign to indicate a negative net present value.

	Primitive Camping		Lakeside Fishing
Present value of net cash flow total	$fill in the blank 3		$fill in the blank 4
Amount to be invested	fill in the blank 5		fill in the blank 6
Net present value	$fill in the blank 7		$fill in the blank 8