6. BSU Inc. wants to purchase a new machine for $35,600, excluding $1,400 of installation costs. The old machine was bought five years ago and had an expected economic life of 10 years without salvage value. This old machine now has a book value of $2,200, and BSU Inc. expects to sell it for that amount. The new machine would decrease operating costs by $8,000 each year of its economic life. The straight-line depreciation method would be used for the new machine, for a six-year period with no salvage value.

A. Determine the cash payback period in years. (Round cash payback period to 1 decimal place, e.g. 10.5.)

7. Ueker Company is considering three capital expenditure projects. Relevant data for the projects are as follows.

Project | Investment | Annual Income | Life of Project | |||

22A | $241,510 | $17,200 | 6 years | |||

23A | 272,270 | 20,670 | 9 years | |||

24A | 283,560 | 18,250 | 7 years |

Annual income is constant over the life of the project. Each project is expected to have zero salvage value at the end of the project. Ueker Company uses the straight-line method of depreciation.A. Determine the internal rate of return for each project. (Round answers 0 decimal places, e.g. 10.)

Project | Internal Rate of Return |

22A | % |

23A | % |

24A | % |

8. Pierre’s Hair Salon is considering opening a new location in French Lick, California. The cost of building a new salon is $318,300. A new salon will normally generate annual revenues of $71,008, with annual expenses (including depreciation) of $39,200. At the end of 15 years the salon will have a salvage value of $79,300.

Calculate the annual rate of return on the project. (Round answer to 0 decimal places, e.g. 125.)

Annual rate of return | % |

11. BAP Corporation is reviewing an investment proposal. The initial cost and estimates of the book value of the investment at the end of each year, the net cash flows for each year, and the net income for each year are presented in the schedule below. All cash flows are assumed to take place at the end of the year. The salvage value of the investment at the end of each year is equal to its book value. There would be no salvage value at the end of the investment’s life.

Investment Proposal | ||||||||||

Year | Initial Cost and Book Value | Annual Cash Flows | Annual Net Income | |||||||

0 | $105,350 | |||||||||

1 | 70,440 | $45,300 | $10,390 | |||||||

2 | 41,690 | 41,000 | 12,250 | |||||||

3 | 20,100 | 34,100 | 12,510 | |||||||

4 | 7,290 | 30,600 | 17,790 | |||||||

5 | 0 | 24,500 | 17,210 |

BAP Corporation uses a 12% target rate of return for new investment proposals.

A. What is the cash payback period for this proposal? (Round answer to 2 decimal places, e.g. 10.50.)

Cash payback period | years |

12. Quillen Company is performing a post-audit of a project completed one year ago. The initial estimates were that the project would cost $228,203, would have a useful life of 9 years, zero salvage value, and would result in net annual cash flows of $43,800 per year. Now that the investment has been in operation for 1 year, revised figures indicate that it actually cost $247,882, will have a useful life of 11 years, and will produce net annual cash flows of $39,288 per year.

Original estimate net present value | $ |

Revised estimate net present value | $ |

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