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 $47,000 annually, and additional selling and general expenses related to the dinosaurs at $55,000 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.

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 $47,000 annually, and additional selling and general expenses related to the dinosaurs at $55,000 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. Instructions a. Prepare a schedule showing the estimated increase in annual net income from the planned manufacture and sale of dinosaur toys Answer is complete and correct. TOYING WITH NATURE Schedule of Estimated Net Income Estimated sales 480,000 Less estimated incremental costs Variable manufacturing costs Fixed manufacturing costs Selling and general expenses Depreciation expense $ 200,000 01 47,000 55,000 110,000 412,000 68,000 27,200 $ 40,800 Income before income taxes Income taxes expense Estimated increase in annual net income b. Compute the annual net cash flows expected from this project. Answer is complete and correct. net cas $ 150,800 c. Compute the following. Assume discounted at an annual rate of 15 percent. Use Exhibit 26-3 and 26-4 where necessary. (Round your "PV factors" to 3 decimal places. Round "Playback period" and "Return on average investment" to 1 decimal places.) Answer is complete but not entirely correct (1) Payback period 2.3 years Return on average investment 11.7 % (3) Net present value s (5,724)