• The company requires all capital investments to generate a minimum internal rate of return of 10%.
• The company requires a payback period of 4 years or less.
• All projects having a positive NPV will be considered.
• The project(s) with the highest profitability ratios will be selected for funding.
• The organization will fund as many projects as possible; however, if the allotment of funds is not depleted, the balance will be carried over to the following year.

1. The company is considering a new line of fish. They think the investment will tie up $65,000 of working capital but no additional facilities would be needed. However, the new line would require additional cash expenses of $959,000 (use the last 3 digits of your student ID) per year and raw materials costs associated with it are expected to be $1,540,000 per year while the total labor cost is expected to be $1,255,000. They believe the new line will generate annual cash revenue of $3,925,000 each year for 5 years.

2. The vice-president, Jon Marsh, wants the company to consider a new Blue Fin project that will require an initial investment of $52,000 and is expected to generate future cash flows of $10,000 for years 1 through 3; $8,000 for years 4 and 5, and $2,000 for years 6 - 10.

3. The CFO, James Jones, is suggesting the company should invest in two new machines. Machine A has a 4-year expected life and a cost of $67,000 .It will cost an additional $4,500 to have the machine delivered and installed and the expected residual value at the end of 4 years is $3,200. Machine B has a 4-year expected life and a cost of $73,000. It will cost an additional $5,000 to have the machine delivered and installed and the expected residual value at the end of 4 years is $5,200. Additional cash flows related to the machines are as follows:

Machine A

Item Year 1 Year 2 Year 3 Year 4

Labor savings $21,000 $21,000 $21,000 $21,000

Power saving 1,300 1,300 1,300 1,300

Chemical saving 2,900 2,900 2,900 2,900

Maintenance (1,000) (1,300) (1,600) (2,500)

Miscellaneous (2,200) (2,700) (3,200) (3,700)

Machine B

Item Year1 Year 2 Year 3 Year 4

Labor savings $29,000 $29,000 $29,000 $29,000

Power savings 1,900 1,900 1,900 1,900

Chemical saving 3,200 3,200 3,200 3,200

Maintenance (1,200) (1,400) (1,600) (2,700) Miscellaneous (2,300) (2,800) (3,500) (3,800)

4. Walter Leland, the Vice President, thinks they should add a custom molding shop to make mermaid tails. The construction of the building and the purchase of the necessary equipment is estimated to cost $678,000 and will be depreciated over 10 years using the straight-line method. The building and equipment have zero estimated residual value at the end of 10 years. The shop is expected to generate $188,000. in revenues for 10 years. The annual cost of operating the shop is as follows:

Item Cash Flow

Materials ($18,000)

Labor (53,000)

Direct overhead (17,000)

Miscellaneous (4,500)