Situation: Joe, owner of Joe's Tomato Patch, is considering buying a new sprayer to better manage his pest and disease issues. With the new equipment, Joe estimates that he would save 25% on his current chemical material costs. In addition, the equipment has better loading and mixing capacity that would allow Joe to save another 15% on tractor operating time. Currently, Joe's annual cost of chemical is $167,500 and total hourly wages paid to his tractor driver is $45,000. These cost numbers are NOT expected to change for the next 7 years. Joe uses a "straight-line" depreciation schedule to account for his machinery. Details of Joe's investment decision: Cost of purchase: Expected life: Salvage Value: Joe's personal discount rate: $150,000 7 years $0 10% Joe's investment goals: Return on Investment (ROI): Desired Payback period: 12% 3-years Based on the above information and following the questions below, fill out the table. 1. What are Joe's total estimated savings, or change in farm income, if he buys this equipment? 2. What is the annual amount of depreciation for the sprayer over its expected life? 3. List the annual present value discount factors for Joe's discount rate. 4. What is the investment amount in this sprayer? 5. Calculate the present value for the expected change in farm income over the expected life of the sprayer. (United States) Focus 6. What is the Net Present Value for the investment in this sprayer? 7. What is the payback period for this sprayer? 8. What is the simple rate of return on this investment? Year Change in farm income Depreciation on sprayer ($/vr) ($/yr) Discount factors (10%) Present Value ($/yr) 1 2 3 4 5 6 7 Total Initial cost of pprayer Net Present Value 9. Is this a good investment? (your opinion and why)