8-101
(Ignore income taxes in this problem.) The Crawford Company is pondering an investment
in a machine that costs $350,000, that will have a useful life of eight years, and that will have a
salvage value of $25,000. If this machine is purchased, a similar, old machine will be sold at a
salvage value of $40,000. The anticipated yearly revenues and expenses associated with the new
machine are:
All of the revenues and expenses except depreciation are for cash. The company’s required rate
of return is 12%. The annual cash flows occur uniformly throughout the year.
115. The payback period, to the nearest tenth of a year, of this investment is:
8-103
116. The simple rate of return, to the nearest tenth of a percent, of this investment is:
(Ignore income taxes in this problem.) Friden Company has just purchased a new piece of
equipment with the following characteristics:
117. Assume straight-line depreciation and no salvage value. The payback period would be:
118. The simple rate of return would be approximately:
8-106
119. (Ignore income taxes in this problem.) Tranter, Inc., is considering a project that would
have a ten-year life and would require a $1,200,000 investment in equipment. At the end of ten
years, the project would terminate and the equipment would have no salvage value. The project
would provide net operating income each year as follows:
All of the above items, except for depreciation, represent cash flows. The company’s required
rate of return is 12%.
Required:
a. Compute the project’s net present value.
b. Compute the project’s internal rate of return to the nearest whole percent.
c. Compute the project’s payback period.
d. Compute the project’s simple rate of return.
120. (Ignore income taxes in this problem.) Farah Corporation has provided the following data
concerning a proposed investment project:
The company uses a discount rate of 11%. The working capital would be released at the end of
the project.
Required:
Compute the net present value of the project.
121. (Ignore income taxes in this problem.) Dunay Corporation is considering investing
$810,000 in a project. The life of the project would be 9 years. The project would require
additional working capital of $24,000, which would be released for use elsewhere at the end of
the project. The annual net cash inflows would be $162,000. The salvage value of the assets
used in the project would be $41,000. The company uses a discount rate of 17%.
Required:
Compute the net present value of the project.
122. (Ignore income taxes in this problem.) Whatley Inc. is considering investing in a project
that would require an initial investment of $460,000. The life of the project would be 5 years. The
annual net cash inflows from the project would be $138,000. The salvage value of the assets at
the end of the project would be $69,000. The company uses a discount rate of 15%.
Required:
Compute the net present value of the project.
123. (Ignore income taxes in this problem.) Bill Anders retires in 8 years. He has $650,000 to
invest and is considering a franchise for a fast-food outlet. He would have to purchase equipment
costing $500,000 to equip the outlet and invest an additional $150,000 for inventories and other
working capital needs. Other outlets in the fast-food chain have an annual net cash inflow of
about $160,000. Mr. Anders would close the outlet in 8 years. He estimates that the equipment
could be sold at that time for about 10% of its original cost. Mr. Anders’ required rate of return is
16%.
Required:
What is the investment’s net present value when the discount rate is 16 percent? Is this an
acceptable investment?
124. (Ignore income taxes in this problem.) Weilbacher Corporation is considering the
purchase of a machine that would cost $240,000 and would last for 8 years. At the end of 8 years,
the machine would have a salvage value of $50,000. The machine would reduce labor and other
costs by $62,000 per year. The company requires a minimum pretax return of 16% on all
investment projects.
Required:
Determine the net present value of the project. Show your work!
125. (Ignore income taxes in this problem.) Jim Bingham is considering starting a small
catering business. He would need to purchase a delivery van and various equipment costing
$125,000 to equip the business and another $60,000 for inventories and other working capital
needs. Rent for the building used by the business will be $35,000 per year. Jim’s marketing
studies indicate that the annual cash inflow from the business will amount to $120,000. In
addition to the building rent, annual cash outflow for operating costs will amount to $40,000. Jim
wants to operate the catering business for only six years. He estimates that the equipment could
be sold at that time for 4% of its original cost. Jim uses a 16% discount rate.
Required:
Would you advise Jim to make this investment?
126. (Ignore income taxes in this problem.) Jane Summers has just inherited $600,000 from
her mother’s estate. She is considering investing part of these funds in a small catering business.
She would need to purchase a delivery van and various equipment costing $100,000 to equip the
business and another $50,000 for inventories and other working capital needs. Rent on the
building used by the business will be $24,000 per year. Jane’s marketing studies indicate that the
annual cash inflow from the business will amount to $90,000. In addition to the building rent,
other annual cash outflows for operating costs will amount to $30,000. Jane wants to operate the
catering business for only six years. She estimates that the equipment could be sold at that time
for about 10% of its original cost. Jane’s required rate of return is 16%.
Required:
Compute the net present value of this investment.
127. (Ignore income taxes in this problem.) The management of Basler Corporation is
considering the purchase of a machine that would cost $440,000, would last for 7 years, and
would have no salvage value. The machine would reduce labor and other costs by $88,000 per
year. The company requires a minimum pretax return of 12% on all investment projects.
Required:
Determine the net present value of the project. Show your work!
128. (Ignore income taxes in this problem.) A newly developed device is being considered by
Fairway Foods for use in processing and canning peaches. The device, which is available only on
a royalty basis, is reported to be a great labor saver. Fairway’s production manager has gathered
the following data:
The new device must be obtained through a licensing arrangement with the developer. The
license period lasts for only 8 years. Fairway Foods’ required rate of return is 10%.
Required:
By use of the incremental cost approach, compute the net present value of the proposed
licensing of the new device. Show all computations in good form. Should the company enter into
a licensing arrangement to use the new device?
129. (Ignore income taxes in this problem.) Janes, Inc., is considering the purchase of a
machine that would cost $430,000 and would last for 6 years, at the end of which, the machine
would have a salvage value of $47,000. The machine would reduce labor and other costs by
$109,000 per year. Additional working capital of $4,000 would be needed immediately, all of
which would be recovered at the end of 6 years. The company requires a minimum pretax return
of 17% on all investment projects.
Required:
Determine the net present value of the project. Show your work!
130. (Ignore income taxes in this problem.) Juliar Inc. has provided the following data
concerning a proposed investment project:
The company uses a discount rate of 12%.
Required:
Compute the net present value of the project.