W11 L Company is considering two new machines that should produce considerable cost savings in its assembly operations. The cost of each machine is $14,000 and neither is expected to have a salvage value at the end of a 4-year useful life. L Company's required rate of return is 12% and the company prefers that a project return its initial outlay within the rst hallI of the project's life. The annual after-tax cash savings for each machine are provided in the following table: m Machine A Machine B 1 $5,000 $3.000 2 5,000 6,000 3 5,000 4,000 4 5,000 2,000 Total $20,000 $20,000 Required: a) Compute the payback period for each machine b) Compute the net present value for each machine. c) Which machine should be purchased? Prat Pr lm#2: B Company is considering purchasing equipment that costs $235,000. The equipment has an estimated useful life of 5 years and no salvage value. 8 Company believes that the annual cash inflows from using the equipment will be $65,000. Required: a) Calculate the net present value of the equipment assuming that B Company's cost of capital is 12%. Is the equipment an acceptabie investment? b) Calculate the net present value of the equipment assuming that B Company's cost of capital is 10%. Is the equipment an acceptabie investment? Practice Problem #3 C Company is investigating four different opportunities. Information on the four projects under study is as follows: Projec_t_1 Project 2 Project 3 Project 4 Investment required $430,000 $350,000 $270,000 $450,000 Present value of cash inows 56? ,2?0 433,400 336,140 522,9 ?0 Net present value $B?,2?0 $?3.400 $66,140 $?2.9?0 Life of project 6 years 12 years 6 years 3 years The company's required rate of return is 10%; therefore a 10% discount rate has been used in the present value computations above. Limited funds are available for investment, so the company cannot accept all of the available projects. Required: 3) Compute the protability index for each investment project b) Rank the four projects according to preference, in terms of: 0 Net present value I Present value index Practice Problem #4 5 Company is considering the purchase of a nevi;I piece of equipment for laying sod. Relevant information concerning the equipment follows; Cost of the equipment $130,000 Annual cost savings from new equipment $3?,500 Life of the new equipment 12 years Expected Annual Net Income $15,000 Required: at) Compute the payback period for the equipment. If the company requires a payback period of four years or less. would the equipment be purchased? b} Compute the annual rate of return on the equipment. Would the equipment he purchased if the company's required rate 01 return is 14%? Practice Problem #5 P Company is considering a 5-year project. It pians to invest $02000 now and it forecasts cash flows for each year of $16,200. The company reouires a minimum rate of 12%. Required: Calculate the internal rate of return to determine whether it should accept this project