Answer Happy

A company that manufactures recreational pedal boats has approached Edward Cichanowski to ask if he would be interested in using Current Designs' rotomold expertise and equipment to produce some of the pedal boat components. Edward is intrigued by the idea and thinks it would be an interesting way of complementing the present product line. One of Edward's hesitations about the proposal is that the pedal boats are a different shape than the kayaks that Current Designs produces. As a result, the company would need to buy an additional rotomold oven in order to produce the pedal boat components. This project clearly involves risks, and Edward wants to make sure that the returns justify the risks. In this case, since this is a new venture, Edward thinks that a 15% discount rate is appropriate to use to evaluate the project. As an intern at Current Designs, Edward has asked you to prepare an initial evaluation of this proposal. To aid in your analysis, he has provided the following information and assumptions. 1. The new rotomold oven will have a cost of $289,000, a salvage value of $0, and an 8-year useful life. Straight-line depreciation will be used. The projected revenues, costs, and results for each of the 8 years of this project are as follows. 2. $223,600 Sales Less: Manufacturing costs Depreciation Shipping and administrative costs Income before income taxes Income tax expense Net income $145,000 36,125 20,000 201,125 22,475 9,150 $13,325
(a) Compute the annual rate of return. (Round answer to 2 decimal places, e.g. 15.25%.) Annual rate of return %
(b). Compute the payback period. (Round answer 2 decimal places, eg. 15.25.) Payback period years
Compute the net present value using a discount rate of 6%. (If the net present value is negative, use either a negative sign preceding the numbereg. -45 or parentheses eg (45). Round answer to O decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value $ Should the proposal be accepted using this discount rate? the proposal.
(d) Compute the net present value using a discount rate of 15%. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg. (45). Round answer to decimal places, eg. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value $ Should the proposal be accepted using this discount rate? the proposal.
TABLE 1 Future Value of 1 (n) Periods 0 1 2 3 4 5 ONmir 6 7 8 9 10 O 000 4% 5% 1.00000 1.00000 1.04000 1.05000 1.08160 1.10250 1.12486 1.15763 1.16986 1.21551 1.21665 1.27628 1.26532 1.34010 1.31593 1.40710 1.36857 1.47746 1.42331 1.55133 1.48024 1.62889 1.53945 1.71034 1.60103 1.79586 1.66507 1.88565 1.73168 1.97993 1.80094 2.07893 1.87298 2.18287 1.94790 2.29202 2.02582 2.40662 2.10685 2.52695 2.19112 2.65330 6% 7% 1.00000 1.00000 1.06000 1.07000 1.12360 1.14490 1.19102 1.22504 1.26248 1.31080 1.33823 1.40255 1.41852 1.50073 1.50363 1.60578 1.59385 1.71819 1.68948 1.83846 1.79085 1.96715 1.89830 2.10485 2.01220 2.25219 2.13293 2.40985 2.26090 2.57853 2.39656 2.75903 2.54035 2.95216 2.69277 3.15882 2.85434 3.37993 3.02560 3.61653 3.20714 3.86968 8% 1.00000 1.08000 1.16640 1.25971 1.36049 1.46933 1.58687 1.71382 1.85093 1.99900 2.15892 2.33164 2.51817 2.71962 2.93719 3.17217 9% 1.00000 1.09000 1.18810 1.29503 1.41158 1.53862 1.67710 1.82804 1.99256 2.17189 2.36736 2.58043 2.81267 3.06581 3.34173 3.64248 3.97031 4.32763 4.71712 5.14166 5.60441 10% 11% 12% 1.00000 1.00000 1.00000 1.10000 1.11000 1.12000 1.21000 1.23210 1.25440 1.33100 1.36763 1.40493 1.46410 1.51807 1.57352 1.61051 1.68506 1.76234 1.77156 1.87041 1.97382 1.94872 2.07616 2.21068 2.14359 2.30454 2.47596 2.35795 2.55803 2.77308 2.59374 2.83942 3.10585 2.85312 3.15176 3.47855 3.13843 3.49845 3.89598 3.45227 3.88328 4.36349 3.79750 4.31044 4.88711 4.17725 4.78459 5.47357 4.59497 5.31089 6.13039 5.05447 5.89509 6.86604 5.55992 6.54355 7.68997 6.11591 7.26334 8.61276 6.72750 8.06231 9.64629 15% 1.00000 1.15000 1.32250 1.52088 1.74901 2.01136 2.31306 2.66002 3.05902 3.51788 4.04556 4.65239 5.35025 6.15279 7.07571 8.13706 9.35762 10.76126 12.37545 14.23177 16.36654 11 12 13 14 15 16 17 18 19 20 3.42594 3.70002 3.99602 4.31570 4.66096