$(1)$ Keep or Replace: Green Pizza Company is trying to decide whether to:

$($a$)$ Keep using an old oven; or $($b$)$ Buy a new one to replace the old one.

The following information is given:

$$

The company uses a discount rate of $8\%$ to compute present values. Based on the net present value method, determine which option is the better.$$ You need to show detailed computations.

$$

$$

$(2)$ Project Selection:$$ Petit Industries has $$100,000$ to invest in one of the following two projects:

$$

Project A

Project B

Cost of equipment required

$ $100,000$

$$

$ $0$

$$

Working capital investment required

$ $0$

$$

$ $100,000$

$$

Annual cash inflows

$ $21,000$

$$

$ $16,000$

$$

Salvage value of equipment in six years

$ $8,000$

$$

$ $0$

$$

Life of the project

$6$

years

$6$

years

The working capital needed for project B will be released at the end of six years for investment elsewhere. Petit Industries$$ discount rate is $14\%.$

Based on net present value, which project is the better? And by how much?

You need to show detailed computations.

$$

$(3)$ Scarce Resource:$$ Clark Industry$$makes and sells two products, X and Y$.$ The data regarding these two$$components$$follow$.$

$$ X$$Y

Selling price per unit$$ $$2,000$ $$2,500$

Variable cost per unit$$ $$1,100$$$1,300$

Unit contribution margin$$ $$900$ $$1,200$

Machine hours required$4550$

$$to make $1$ unit of product

$$

$$ The market demand for each product is $100$ units.

$$ Clark has $7,700$ hours of machine time available.

$$ If Clark correctly determines which product is to be made first and second, Clark will generate a total contribution margin of $$162,000.$

$$

$($a$)$ Which product should Clark make first?$$ Show reasoning and computations.

$$

$$

$$

$($b$)$ Clar has received an offer from Advantage Co$.$ If Clark accepts the offer, the following will happen:

$$

$*$ Thanks to a new technology provided by Advantage, Clark can use $36$ machine hours per each

$$ unit of Product X

$*$ If Clark wants, Clark can buy Product X $($as many as Clark wants$)$ from Advantage for $$1,892$

$$each$,$ and resell it for $$2,000$ each.$$

$$

$($i$)$ If this offer is accepted, which product should Clark make first?$$ Show reasoning and computations.

$$

$$

$$

$($ii$)$ If Clark accepts this offer, what is the$$maximum$$$ amount$$that Clark can pay to Advantage?

Show reasoning and computations.

$$