10.1. Testco Corporation is considering adding a new product line. The cost of the factory and equipment to produce this product is $1,780,000. Company management expects net cash flows from the sale of this product to be $450,000 in each of the next eight years. If Testco uses a discount rate of 12 percent for projects like this, what is the net present value of this project? What is the internal rate of return?

10.2. Flowers unlimited is considering purchasing an additional delivery truck that will have a seven-year useful life. The new truck will cost $42,000. Cost savings with this truck are expected to be $12,800 for the first two years, $8,900 for the following two years, and $5,000 for the last three years of the trucks useful life. What is the payback period for this project? What is the discounted payback period for this project with a discount rate of 10 percent?

10.3. What is the average accounting rate of return (ARR) on a piece of equipment that will cost $1.2 million and that will result in pretext cost savings of $380,000 for the first three years and then $280,000 for the following three years? Assume that the machinery will be depreciated to a salvage value of 0 over six years using the straight-line method and the companys tax rate is 32 percent. If the acceptance decision is based on the project exceeding an ARR of 20 percent, should this machinery be purchased?