Suppose your cookie company is now a corporation that has granted franchises to more than 50 stores. Currently, only 10 of the 50 stores have computerized machines for mixing cookie dough. Because of a tremendous increase in demand for cookie dough, you, as the corporation's president, are considering purchasing 10 more computerized mixing machines by the end of this month. You are writing a memo evaluating this purchase that you will present at the board of directors' meeting next week.

According to your research, the 10 new machines will cost $320,000. They will function for an estimated five years and should have a $32,000 residual value. All of your corporation's capital investments are expected to produce a 20 percent minimum rate of return, and they should be recovered in three years or less. All fixed assets are depreciated using the straight-line method. The forecasted increase in operating results for the aggregate of the 10 new machines is as follows:

1. In preparation for writing your memo, answer the following questions:
a. What kinds of information do you need to prepare this memo?
b. Why is the information relevant?
c. Where would you find the information?
d. When would you want to obtain the information?
2. Analyze the purchase of the machines, and decide if your corporation should purchase them. Use (a) the net present value method, (b) the accounting rate-of-return method, and (c) the payback periodmethod.

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Cash Flow Estimates Year Cash Inflows Cash $310,000 325,000 340,000 300,000 260,000 Outflows $210,000 220,000 230,000 210,000 180,000