The management of Unter Corporation, an architectural design firm, is considering an investment with the following cash flows: Year Investment Cash Inflow $58,000 4,000 8,000 8,000 $11,000 $14,000 $17,000 $15,000 $13,000 $11,000 $10,000 $10,000 10 Required: 1. Determine the payback period of the investment. 2. Would the payback period be affected if the cash inflow in the last year were several times as large? Information on four investment proposals is given below: Investment Proposal Investment required (120,000) $(50,000) $ (50,000) $(360,000) 67,300 Present value of cash inflows 169,200 79,000 476,000 $ 49,200 17,300 29,000 $ 116,000 Net present value Life of the project 6 years 5 years 7 years 6 years Required: 1. Compute the project profitability index for each investment proposal. (Round your answers to 2 decimal places.) 2. Rank the proposals in terms of preference Project Investment Profitability Preference Rank Proposal Index The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $55,000. The machine would replace an old piece of equipment that costs $14,000 per year to operate. The new machine would cost $6,000 per year to operate. The old machine currently in use could be sold now for a salvage value of $20,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.) 1. Depreciation expense 2. Incremental net operating income 3 Initial investment 4. Simple rate of return Perit Industries has $200,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are Project A Project B $200,000$ Cost of equipment required Working capital investment required Annual cash inflows 0 $200,000 $29,000 51,000 $ 9,000 $ 6 years Salvage value of equipment in six years Life of the project 6 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discount rate is 14%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables Required: 1. Compute the net present value of Project A. (Enter negative value with a minus sign. Round your final answer to the nearest whole dollar amount.) 2. Compute the net present value of Project B. (Enter negative value with a minus sign. Round your final answer to the nearest whole dollar amount.) 3. Which investment alternative (if either) would you recommend that the company accept
