uboul the thternal rate of return. Problems (5 points each) 1. The mayor of Trenton is considering the purchase of a new computer system for the city's tax department. The system costs $75,000 and has an expected life of five years. The mayor estimates the following savings will result if the system is purchased Savings PV of Sl at 10% 0.909 0.826 0.751 Year PV of an ordina ryannuity at10% 909 1.736 2.487 3.170 $20,000 25,000 2 3 50000.683 12,000 3.791 0.621 5 uses a 10% discount rate for capital-budgeting decisions. Trenton A salesperson from a different computer company claims that his machine, which costs $85,000 and has an estimated service life of four years, will generate annual savings for the city of $32,000. If the discount rate is 10%, the net present value of this system would be: 2. Jenkins plans to generate $650,000 of sales revenue if a capital project is implemented. Assuming a 30% tax rate, the sales revenue should be reflected in the analysis by a: 3. Higgins Company plans to incur $350,000 of salaries expense if a capital project is implemented. Assuming a 30% tax rate, the salaries should be reflected in the analysis by a: 4. Bowers Company plans to incur $190,000 of salaries expense and produce $320,000 of additional sales revenue if a capital project is implemented. Assuming a 30% tax rate, these two items collectively should appear in a capital budgeting analysis as: 5. The Boot Department at the Omaha Department Store is being considered for closure. The following information relates to boot activity: Sales revenue S350,000 Variable costs: Cost of goods sold Sales commissions Fixed operating costs 280,000 30,000 90,000 If 70% ofthe fixed operating costs are avoidable, should the Boot Department be closed? 6. Carlton Corporation is composed of five divisions. Each division is allocated a share of Carlton's overhead to make divisional managers aware of the cost of running the corporat headquarters. The following information relates to the Metro Division: $7,500,000 5,100,000 1,900,000 300,000 Sales revenue Variable operating costs Traceable fixed operating costs Allocated corporate overhead uboul the thternal rate of return. Problems (5 points each) 1. The mayor of Trenton is considering the purchase of a new computer system for the city's tax department. The system costs $75,000 and has an expected life of five years. The mayor estimates the following savings will result if the system is purchased Savings PV of Sl at 10% 0.909 0.826 0.751 Year PV of an ordina ryannuity at10% 909 1.736 2.487 3.170 $20,000 25,000 2 3 50000.683 12,000 3.791 0.621 5 uses a 10% discount rate for capital-budgeting decisions. Trenton A salesperson from a different computer company claims that his machine, which costs $85,000 and has an estimated service life of four years, will generate annual savings for the city of $32,000. If the discount rate is 10%, the net present value of this system would be: 2. Jenkins plans to generate $650,000 of sales revenue if a capital project is implemented. Assuming a 30% tax rate, the sales revenue should be reflected in the analysis by a: 3. Higgins Company plans to incur $350,000 of salaries expense if a capital project is implemented. Assuming a 30% tax rate, the salaries should be reflected in the analysis by a: 4. Bowers Company plans to incur $190,000 of salaries expense and produce $320,000 of additional sales revenue if a capital project is implemented. Assuming a 30% tax rate, these two items collectively should appear in a capital budgeting analysis as: 5. The Boot Department at the Omaha Department Store is being considered for closure. The following information relates to boot activity: Sales revenue S350,000 Variable costs: Cost of goods sold Sales commissions Fixed operating costs 280,000 30,000 90,000 If 70% ofthe fixed operating costs are avoidable, should the Boot Department be closed? 6. Carlton Corporation is composed of five divisions. Each division is allocated a share of Carlton's overhead to make divisional managers aware of the cost of running the corporat headquarters. The following information relates to the Metro Division: $7,500,000 5,100,000 1,900,000 300,000 Sales revenue Variable operating costs Traceable fixed operating costs Allocated corporate overhead