Q1. The following data are accumulated by Lingle Company in evaluating the purchase of $113,000 of equipment, having a 4-year useful life:

	Net Income	Net Cash Flow
Year 1	$33,000		$56,000
Year 2	20,000		43,000
Year 3	10,000		32,000
Year 4	(1,000)		22,000

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

a. Assuming that the desired rate of return is 20%, determine the net present value for the proposal. Use the table of the present value of $1 presented above. If required, round to the nearest dollar. If required, use the minus sign to indicate a negative net present value.

Present value of net cash flow	$__________
Amount to be invested	$__________
Net present value	$__________

Q2.

Outside Inn Hotels is considering the construction of a new hotel for $60 million. The expected life of the hotel is 9 years with no residual value. The hotel is expected to earn revenues of $18 million per year. Total expenses, including depreciation, are expected to be $12 million per year. Outside Inn management has set a minimum acceptable rate of return of 13%. Assume straight-line depreciation.

Present Value of an Annuity of $1 at Compound Interest
Periods	8%	9%	10%	11%	12%	13%	14%
1	0.92593	0.91743	0.90909	0.90090	0.89286	0.88496	0.87719
2	1.78326	1.75911	1.73554	1.71252	1.69005	1.66810	1.64666
3	2.57710	2.53129	2.48685	2.44371	2.40183	2.36115	2.32163
4	3.31213	3.23972	3.16987	3.10245	3.03735	2.97447	2.91371
5	3.99271	3.88965	3.79079	3.69590	3.60478	3.51723	3.43308
6	4.62288	4.48592	4.35526	4.23054	4.11141	3.99755	3.88867
7	5.20637	5.03295	4.86842	4.71220	4.56376	4.42261	4.28830
8	5.74664	5.53482	5.33493	5.14612	4.96764	4.79677	4.63886
9	6.24689	5.99525	5.75902	5.53705	5.32825	5.13166	4.94637
10	6.71008	6.41766	6.14457	5.88923	5.65022	5.42624	5.21612

a. Determine the equal annual net cash flows from operating the hotel. Round to the nearest million dollars. $____________

b. Compute the net present value of the new hotel using the present value of an annuity of $1 table above. Round to the nearest million dollars. If required, use the minus sign to indicate a negative net present value. Net present value of hotel project: $___________

Q3.

Sweet Tooth Candy Company has computed the net present value for capital expenditure at two locations. Relevant data related to the computation are as follows:

	Carolina	Jersey
Total present value of net cash flow	$285,310		$316,800
Less amount to be invested	277,000		330,000
Net present value	$8,310		$(13,200)

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

	Carolina	Jersey
Total present value of net cash flow	$__________	$_________
Amount to be invested	$_________	$_________
Present value index	___________	__________

Q4.

Cross Country Railroad Inc. is considering acquiring equipment at a cost of $124,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $31,000. The company's minimum desired rate of return for net present value analysis is 10%.

Present Value of an Annuity of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	1.833	1.736	1.690	1.626	1.528
3	2.673	2.487	2.402	2.283	2.106
4	3.465	3.170	3.037	2.855	2.589
5	4.212	3.791	3.605	3.353	2.991
6	4.917	4.355	4.111	3.785	3.326
7	5.582	4.868	4.564	4.160	3.605
8	6.210	5.335	4.968	4.487	3.837
9	6.802	5.759	5.328	4.772	4.031
10	7.360	6.145	5.650	5.019	4.192

Compute the following:

a. The average rate of return, assuming the annual earnings are equal to the net cash flows less the annual depreciation expense on the equipment. If required, round your answer to one decimal place. ___________

b. The net present value. Use the above table of the present value of an annuity of $1. Round to the nearest dollar.

Present value of annual net cash flows	$____________
Less amount to be invested	$____________
Net present value	____________