Royal Garden Tools produces and sells two products. Following is the revenue and cost information for the companys two products.

	Deluxe Grass Trimmer	Super Leaf Blower
Selling Price per Unit	$ 60.00	$ 75.00
Variable Expenses per Unit	$ 24.00	$ 55.00
Traceable Fixed Costs per year	$ 350,000	$ 210,000

Last year the company sold 15,000 Grass Trimmers and 25,000 Leaf Blowers. Royals Net Income for the year totaled $ 350,000.

Question A and B:

A farm owner is considering replacing his obsolete tractor with one of two new state-of-the-tractors. This new machine would cost $125,000 and would have a ten-year useful life. Unfortunately, the new machine would have no salvage value but would result in annual cost savings of $23,000 per year. The current old tractor can be sold now for $10,000. The farm owners Cost of Capital is 10%. The farm owner uses the straight line method of depreciation

a.) Calculate the Net Present Value of replacing the tractor .

b.) Based on this method of comparison, would you recommend replacing the tractor? Why?

Question 2.

Based on the above information for Question #2 and your solution to that question,

calculate the following associated with replacing the tractor:

c.) The Profitability Index

d.) The Payback Period

e.) Simple Rate of Return