A B 0 1 2 3 4 15 16 17 2) 18 Project 1: A bicycle manufacturer has an opportunity to begin making a new higher-end model which has additional features from the models they currently make. To manufacture the required parts for the new model, the company will need new machinery. Because of the risk level involved in taking on a new product, management is trying to determine whether the returns will justify the risk. Members of management are evaluating the project and have determined a 11% discount rate is appropriate for evaluation purposes. To aid management in their decision-making process, your supervisor has asked you to prepare an analysis of the project giving the following information and assumptions: 1) The new equipment will have a cost of $385,000, a salvage value of $35,000 and a 7-year useful life. Straight line depreciation will be used. The projected revenues, costs, and results for each of the 7 years of this project are as follows: 19 20 21 22 23 24 25 26 27 28 Sales $394,000 Less: Manufacturing costs $255,000 Depreciation 50,000 Shipping costs 27,600 Administrative costs 14,400 347,000 Income before income taxes 47,000 Income tax expense 11,750 Net income $35,250 29 30 Instructions: 31 Using the template below, + 32 a) compute the annual rate of return. 33 b) compute the payback period. 34 c) 35 36 d) 37 compute the NPV using the determined 11% discount rate. Is this proposal acceptable using this discount rate? compute the NPV using a 14% discount rate so that Management has a comparison for analysis. Is this proposal acceptable using this discount rate? 38