25 Minutes, Medium PROBLEM 26.4
MARENGO
a.
(1)
(
3
)
Net
p
resent value, discounted at 15%:
p
(1)
(
)
p
p
(
Proposal A
Payback period:
$400,000 ÷ $80,000 = 5.0 years
Proposal B
Payback period:
25 Minutes, Medium PROBLEM 26.5A
V.S. YOGURT
a.
(1)
(2)
Proposal A
Payback period:
$3,150,000 ÷ $750,000 = 4.2 years
Return on average investment:
30 Minutes, Strong PROBLEM 26.6A
PATHWAYS APPLIANCE COMPANY
a.
Estimated sales (12,000 units @ $35) 420,000$
Less estimated incremental costs:
V
ariable manufacturing costs (12,000 units @ $15) 180,000$
Fixed manufacturing costs (except depreciation) 60,000
Depreciation expense ($240,000 ÷ 4) 60,000
Selling and general expenses 50,000 350,000
Less cash outlays:
V
c. (1)
PATHWAYS APPLIANCE COMPANY
Schedule of Estimated Net Income
Payback period:
40 Minutes, Strong PROBLEM 26.7A
DOCTORS
a.
b.
Payback period:
Return on average investment:
2
2 = $675,000
=Average Investment
Original Cost + Salvage Value
Thus, the MRI’s return on average investment is:
PROBLEM 26.7A
DOCTORS (concluded)
c. Net present value:
The discounted present value of the incremental annual cash flow o
f
As shown above, the net present value of the MRI investment is onl
y
$1,350. Thus, we may conclude that the investment’s actual rate of
return is only slightly greater than 12%
.
d. Some of the nonfinancial factors that the doctors should consider include (1) the pace at
which MRI technology is changing, (2) changes in legislation pertaining to government
50 Minutes, Strong PROBLEM 26.8A
JEFFERSON MOUNTAIN
a.
Payback period:
PROBLEM 26.8A
JEFFERSON MOUNTAIN (continued)
b.
c. Net present value:
Snow-Making Equipment
The discounted present value of the incremental annual cash flow o
f
t
Chairlift
The discounted present value of the incremental annual cash flow o
f
the investment (see part a) discounted at 20% for 36 years i
s
$40,000 × 4.993 (from Exhibit 26.4) 199,720$
Less: Cost of investmen
t
180,000
Net present value 19,720$
Return on average investment:
Snow-Making Equipment
Original Cost + Salvage Value
2
Average
Investment =
PROBLEM 26.8
A
JEFFERSON MOUNTAIN (concluded)
d.
The management of Jefferson Mountain must decide which investment opportunity will
best serve its customers. Thus, it must try to determine if adequate snow coverage with long
lift lines is better than short lift lines with limited snow coverage. A marketing study could
45 Minutes, Strong PROBLEM 26.9A
SONIC, INC.
a.
Payback period:
Computer Chip Equipment
PROBLEM 26.9A
SONIC, INC. (continued)
b.
Return on average investment:
Computer Chip Equipment
Original Cost + Salvage Value
2
Average
Investment =