A new machine costing $$750,000$ will yield cash savings of $$250,000$ each year for four years. In addition, it is anticipated that the new machine will increase productivity and that the company will experience an increase in contribution margin as a result. What annual dollar inflow from increased contribution margin would the company have to experience to make the machine an acceptable investment if the minimum desired rate of return is $18\%?$

a$.$ $$28,810\mathrm{.}41$

b$.$ $$62,500\mathrm{.}00$

c$.$ $$77,500\mathrm{.}00$

d$.$ $$39,687\mathrm{.}14$

The payback period of an investment is useful in determining its:

a$.$ net present value.

b$.$ overall profitability.

c$.$ acceptability in terms of the length of time until the invested funds are free for use elsewhere.

Jacobs Co$.$ is considering buying several specialized tools at a cost of $$5,000.$ The new tools will save the company $$1,500$ in manufacturing costs each year and are expected to last $4$ years. Assume salvage is $$0$ and the tax rate is $34\%.$ Jacobs Co$.$ uses MACRS $200\%$ Declining Balance method to compute depreciation for income tax purposes. The $200\%$ Declining Balance depreciation rates are: $33\mathrm{.}33\%$ in year $1,44\mathrm{.}45\%$ in year $2,14\mathrm{.}81\%$ in year $3,$ and $7\mathrm{.}41\%$ in year $4.$ Using a minimum desired after$-$tax rate of return of $12\%,$ the net present value of the tool purchase would be: $($include the effects of taxes$)$

a$.$ $$124\mathrm{.}69$

$.($$$625\mathrm{.}76)$

c$.($$$437,95)$

d$.$ $$836\mathrm{.}47$

Extra Credit $(1$ pt$)$: Refer to #$10$ above. Assume salvage is $$1,000$ and that Jacobs uses the straight$-$line method to compute depreciation for tax purposes. For tax purposes, these tools will be depreciated over a $3$year life under the assumption they were purchased mid$-$way through the first year and that residual value is $$0($Hint: use depreciation rates of $\frac{1}{6}$ in year $1,\frac{1}{3}$ in year $2,\frac{1}{3}$ in year $3,$ and $\frac{1}{6}$ in year $4).$ Using a minimum desired after$-$tax rate of return of $10\%,$ the net present value of the tool purchase would be: $($include the effects of taxes$)$

a$.($$$379\mathrm{.}28)$

$.$ $$986\mathrm{.}34$

c$.($$$66\mathrm{.}22)$

d$.$ $$125\mathrm{.}72$