Toying With Nature wants to take advantage of children's current fascination with dinosaurs by adding several scale-model dinosaurs to its existing product line. Annual sales of the dinosaurs are estimated at 80,000 units at a price of $6 per unit. Variable manufacturing costs are estimated at $2.50 per unit, incremental fixed manufacturing costs (excluding depreciation) at $43,000 annually, and additional selling and general expenses related to the dinosaurs at $56,000 annually. To manufacture the dinosaurs, the company must invest $350,000 in design molds and special equipment. Since toy fads wane in popularity rather quickly, Toying With Nature anticipates the special equipment will have a three-year service life with only a $20,000 salvage value. Depreciation will be computed on a straight-line basis. All revenue and expenses other than depreciation will be received or paid in cash. The company's combined federal and state income tax rate is 40 percent. Required: a. Prepare a schedule showing the estimated increase in annual net income from the planned manufacture and sale of dinosaur toys. b. Compute the annual net cash flows expected from this project. c. Compute the following. Assume discounted at an annual rate of 15 percent. Use Exhibits 26-3 and 26-4 where necessary. Present Value of $1 Due in n Periods Discount Rate Number of Periods (n) EXHIBIT 26-3 Present Value of $1 Payable in n Periods .712 OOO OUAWN- 1% .990 .980 .971 .961 .951 .942 .933 .923 .914 .905 .820 788 .699 112% 985 .971 .956 .942 .928 .915 .901 .888 875 .862 742 700 585 5% 952 907 .864 .823 .784 .746 .711 .677 .645 .614 377 .310 173 6% 943 890 .840 .792 .747 .705 .665 .627 592 558 312 247 .123 8% 926 857 .794 .735 .681 .630 .583 .540 .500 463 215 .158 .063 10% 12% .909 .893 826 .797 .751 .683 .636 .621 .567 .564 .507 .513 .452 .467 404 424361 386 322 .149 104 102 .066 .032 .017 15% .870 .756 .658 572 .497 .432 .376 20% .833 .694 .579 .482 .402 .335 .279 .233 .194 .162 .026 .013 .001 .327 10 284 247 .061 .035 .007 24 36 *The present value of $1 is computed by the formula p = 1/(1+i)n, where p is the present value of $1, is the discount rate, and n is the number of periods until the future cash flow will occur. Amounts in this table have been rounded to three decimal places and are shown for a limited number of periods and discount rates. Many calculators are programmed to use this formula and can compute present values when the future amount is entered Number of Periods Present Value of $1 to Be Received Periodically for n Periods Discount Rate 112% 5% 6% 8% 10% 12% 15% EXHIBIT 26-4 Present Value of a $1 A Receivable Each Period Periods 1% 20% 0.990 0.985 0.952 0.943 0.926 0.909 0.893 0.870 0.833 1.970 1.956 1.859 1.833 1.783 1.736 1.690 1.626 1.528 2.9412.912 2.723 2.673 2.577 2.487 2.402 2.283 2.106 3.902 3.854 3.546 3.465 3.312 3.170 3.037 2.855 2.589 4.853 4.7834.329 4.212 3.993 3.791 3.605 3.352 2.991 5.795 5.697 5.076 4.917 4.623 4.355 4.111 3.784 3.326 6.728 6.598 5.786 5.582 5.206 4.868 4.564 4.160 3.605 7.652 7.486 6.463 6.210 5.747 5.335 4.968 4.487 3.837 8.566 8.361 7.108 6.802 6.247 5.759 5.328 4.772 4.031 9.471 9.222 7.722 7.360 6.710 6.145 5.650 5.0 194.192 18.046 17.169 12.462 11.470 9.818 8.514 7.469 6.259 4.870 21.243 20.030 13.799 12.550 10.529 8.985 7.784 6.434 4.937 30.108 27.661 16.547 14.621 11.717 9.677 8.192 6.623 4.993