1. Identify the irrelevant incremental cash flows.
2. Calculate the net present values (NPVs).
3. Calculate the equivalent annual costs (EACs).
4. Based on cost only, rank the options from lowest to highest (least expensive to most expensive) using NPV and EAC.
5. How does the fact that the project is financed by a reimbursable grant affect the choice?
6. Discuss the benefits of each decision from the perspective of the librarys mission statement
7. What are some community issues faced by the library and likely barriers to resolution they face?
8. Which project should the library choose? (Which option maximizes the social welfare of the community which, as stated in the mission is to inform, educate, and culturally enrich the lives of all citizens regardless of age, culture, and economic background)
9. Why do stock options sometimes encourage managers to take excessive risks?
10. The CFO should determine the dividend payout amount each year using the dividend residual model since this method minimizes the WACC. Do you agree with this statement?Why or why not.

Figure 1: Selected Financial Information Piedmont Township Library & Tech Center Annual Income (P&L) Statement General Operating Budget (Checking) Item 2009 2010 to date Revenue Budget Actual Budget Actual Beginning Balance $0.00 $0.00 $327.37 $327.37 Fundraising/Donations $1,000.00 $768.00 $1,500.00 $266.72 Grants $0.00 $0.00 $10,000.00** $0.00 Interest $0.00 $0.37 $0.00 $0.46 Loan Proceeds $0.00 $0.00 $10,000 $0.00 Total Revenue $1,000.00 $768.37 $21,827,00 $594.55 Expenses Budget Actual Budget Actual General Meetings $0.00 $0.00 $0.00 $0.00 Insurance $101.00 $101.00 $ 101.00 $101.00 .. Box $40.00 $40.00 $40.00 $40.00 Fundraising $300.00 $300.00 $300.00 $300.00 Loan Repayment $0.00 $0.00 $10,000 $0.00 Total Expenses $441.00 $441.00 $441.00 $441.00 Net Annual Income $559.00 $327.37 $11,436.37 $153.55 **Grant awarded, but money must be spent before funds released Thinking out loud, Mr. Ashton stated We're helping the library. Based on that, we should order the books. Statistics show that two-thirds of America's children living in poverty have no books at home, and the number of families living in poverty is on the rise. Just look at the statistics in our community. Without access to books, it will only get worse. The book collection must be updated. They will just have to refurbish the four older computers currently on hand. "That is true, Ms. Taylor, pointed out. "However, it is also a technology center. As such, it needs more than four refurbished computers. Additional updated computers are necessary. With access to computers, residents can increase computer skills, take on-line classes, fill out job applications and increase literacy." COMMUNITY INFORMATION Piedmont Township is a community comprised of six districts with a population of 1,574 residents. Of that number, 76.62% are classified as belonging to a minority group. According to the most recent census data, 30% of the population is below the poverty line and 33.2% is under the age of 18. FRIENDS OF THE LIBRARY The Friends of the Piedmont Township Public Library & Technology Center is a non-profit organization with a mission to assist the public library in reaching its full potential by findraising, promoting volunteerism, community involvement and improving the quality of the library through a balance between technology and education." As such, the members volunteer, hold findraisers, apply for grants, el. While the organization does not make decisions for the library, it does donate to specific projects and make recommendations to the library board. PIEDMONT TOWNSHIP PUBLIC LIBRARY & TECHNOLOGY CENTER The facility is named the Piedmont Township Public Library & Technalogy Center. The mision is to inform, educar, and culturally enrich the lives of all citizens regardless of age, culture, and economic background The Library collects, organizes, and provides wees written information and technology resources to meet the educational, informational, recreational and cultural needs of the community. The library is committed to the highest standards of ethics and public service, and will strive for the maximum of effectiveness and economy in Library operations. The Library is dedicated to meeting the standards for a small public library * mandated by state regulations The purpose of the community based technology center is to help bridge the knowledge gap enabling access to educational informational, cukural and recreational resources. All citiem from pre-kindergarten to adult learners will have access to a teaching and learning center to acquire computer skills, and to participate in programs, workshops and training sessions. Additionally, this center is the only location in a 35 mile radius providing wireles Internet access to the local residents at no charge. THE TWO PROJECTS 1. The computer project The library board determined that the library would need on new computers in the technology lub to support the community. An additional four refurbished systems currently available would be placed in the children's area. The refurbished computers will be placed in the lab if no new computers are obtained. All systems require Internet access and printing capabilities. The four old computer systems are to be refurbished at a cost of $200 total ($50 each). The wireless internet access is provided through the town for $120 per month and is available even if the new computers are not acquired. However, there is a difference of $20 ($140 vs $120) per month if the new computers are installed. The cost of the new computers is $9,015.14. Another $200 is needed for installation. The expected shelf-life of the systems is four years and the library uses straight line depreciation. However, an upgrade cost of $1,015.00 will increase the shelf-life to seven years total. If the upgrade is chosen, it will be added to the initial cost. Straight-line depreciation will be used. Details listed in Figure 2) Figure 2: Project Data for the Computer Project Cost to refurbish computers $200 total ($50 each) Cost of wireless Internet Access $140 with new computers $120 without new computers Cost of new computers $9,015.14 Installation costs $200 Depreciation on computers without upgrade Four years, straight line to 30 Ugerade Costs $1,015 added to computer Cost Depreciation on computers with upgrade Seven years, straight line to $0 2. The book collection project Volunteers weeded the current collection and identified the books that would be a part of the new collection. Approximately 200 books from the current collection were marked to be moved to the new collection. The books that were not in the new collection, but could be salvaged were sold in a community book drive. The book drive provided an additional $238 that could be wed toward the projects Rased on the spreadsheet from the state that lists the required youth and young adult cellection for a small library, Piedmont Township identified almost 400 books that need to be purchased and added to the collection. The quote received to update the collection totaled $5.500. An aditional $1,500 is needed to acquire hardware to convert the collection to an automated catalog system. The books are not depreciated and have an expected life of twenty years. (Details listed in Figure 3) Figure 3: Project Data for the Book Project Book life Cost of new book collection Cost of automated catalog system 20 years $5.500 $1,500 FINANCING and TAXES The Friends of the Library obtained a grant for $10,000 to pay for a community project. The grant is a reimbursement grant meaning once receipts are received the grantar will seimburse purchases up to $10,000. Since the organization does not have the funds on hand, a local credit union agreed to provide the funds via a kan that will be repaid using the grant. The ban has an interest rate of 4.5% and taxes are assessed at 35% (Details listed in Figure 4) Figure 4: Financing and Tax Information Value of Reimbursement Community Project $10,000 Grant Loan $10,000 at 4.5% TAS WACC 35% 45% Conclusion Mr. Ashton stared at the information given to him by Ms. Taylot. Questions whitled in his head. Which project (the computer purchases without the upgrades, the computer purchases with the upgrades or the book purchases) was best? How should be compare the projects since none were revemue generating alternatives? Which option maximizes the social welfare of the community Figure 1: Selected Financial Information Piedmont Township Library & Tech Center Annual Income (P&L) Statement General Operating Budget (Checking) Item 2009 2010 to date Revenue Budget Actual Budget Actual Beginning Balance $0.00 $0.00 $327.37 $327.37 Fundraising/Donations $1,000.00 $768.00 $1,500.00 $266.72 Grants $0.00 $0.00 $10,000.00** $0.00 Interest $0.00 $0.37 $0.00 $0.46 Loan Proceeds $0.00 $0.00 $10,000 $0.00 Total Revenue $1,000.00 $768.37 $21,827,00 $594.55 Expenses Budget Actual Budget Actual General Meetings $0.00 $0.00 $0.00 $0.00 Insurance $101.00 $101.00 $ 101.00 $101.00 .. Box $40.00 $40.00 $40.00 $40.00 Fundraising $300.00 $300.00 $300.00 $300.00 Loan Repayment $0.00 $0.00 $10,000 $0.00 Total Expenses $441.00 $441.00 $441.00 $441.00 Net Annual Income $559.00 $327.37 $11,436.37 $153.55 **Grant awarded, but money must be spent before funds released Thinking out loud, Mr. Ashton stated We're helping the library. Based on that, we should order the books. Statistics show that two-thirds of America's children living in poverty have no books at home, and the number of families living in poverty is on the rise. Just look at the statistics in our community. Without access to books, it will only get worse. The book collection must be updated. They will just have to refurbish the four older computers currently on hand. "That is true, Ms. Taylor, pointed out. "However, it is also a technology center. As such, it needs more than four refurbished computers. Additional updated computers are necessary. With access to computers, residents can increase computer skills, take on-line classes, fill out job applications and increase literacy." COMMUNITY INFORMATION Piedmont Township is a community comprised of six districts with a population of 1,574 residents. Of that number, 76.62% are classified as belonging to a minority group. According to the most recent census data, 30% of the population is below the poverty line and 33.2% is under the age of 18. FRIENDS OF THE LIBRARY The Friends of the Piedmont Township Public Library & Technology Center is a non-profit organization with a mission to assist the public library in reaching its full potential by findraising, promoting volunteerism, community involvement and improving the quality of the library through a balance between technology and education." As such, the members volunteer, hold findraisers, apply for grants, el. While the organization does not make decisions for the library, it does donate to specific projects and make recommendations to the library board. PIEDMONT TOWNSHIP PUBLIC LIBRARY & TECHNOLOGY CENTER The facility is named the Piedmont Township Public Library & Technalogy Center. The mision is to inform, educar, and culturally enrich the lives of all citizens regardless of age, culture, and economic background The Library collects, organizes, and provides wees written information and technology resources to meet the educational, informational, recreational and cultural needs of the community. The library is committed to the highest standards of ethics and public service, and will strive for the maximum of effectiveness and economy in Library operations. The Library is dedicated to meeting the standards for a small public library * mandated by state regulations The purpose of the community based technology center is to help bridge the knowledge gap enabling access to educational informational, cukural and recreational resources. All citiem from pre-kindergarten to adult learners will have access to a teaching and learning center to acquire computer skills, and to participate in programs, workshops and training sessions. Additionally, this center is the only location in a 35 mile radius providing wireles Internet access to the local residents at no charge. THE TWO PROJECTS 1. The computer project The library board determined that the library would need on new computers in the technology lub to support the community. An additional four refurbished systems currently available would be placed in the children's area. The refurbished computers will be placed in the lab if no new computers are obtained. All systems require Internet access and printing capabilities. The four old computer systems are to be refurbished at a cost of $200 total ($50 each). The wireless internet access is provided through the town for $120 per month and is available even if the new computers are not acquired. However, there is a difference of $20 ($140 vs $120) per month if the new computers are installed. The cost of the new computers is $9,015.14. Another $200 is needed for installation. The expected shelf-life of the systems is four years and the library uses straight line depreciation. However, an upgrade cost of $1,015.00 will increase the shelf-life to seven years total. If the upgrade is chosen, it will be added to the initial cost. Straight-line depreciation will be used. Details listed in Figure 2) Figure 2: Project Data for the Computer Project Cost to refurbish computers $200 total ($50 each) Cost of wireless Internet Access $140 with new computers $120 without new computers Cost of new computers $9,015.14 Installation costs $200 Depreciation on computers without upgrade Four years, straight line to 30 Ugerade Costs $1,015 added to computer Cost Depreciation on computers with upgrade Seven years, straight line to $0 2. The book collection project Volunteers weeded the current collection and identified the books that would be a part of the new collection. Approximately 200 books from the current collection were marked to be moved to the new collection. The books that were not in the new collection, but could be salvaged were sold in a community book drive. The book drive provided an additional $238 that could be wed toward the projects Rased on the spreadsheet from the state that lists the required youth and young adult cellection for a small library, Piedmont Township identified almost 400 books that need to be purchased and added to the collection. The quote received to update the collection totaled $5.500. An aditional $1,500 is needed to acquire hardware to convert the collection to an automated catalog system. The books are not depreciated and have an expected life of twenty years. (Details listed in Figure 3) Figure 3: Project Data for the Book Project Book life Cost of new book collection Cost of automated catalog system 20 years $5.500 $1,500 FINANCING and TAXES The Friends of the Library obtained a grant for $10,000 to pay for a community project. The grant is a reimbursement grant meaning once receipts are received the grantar will seimburse purchases up to $10,000. Since the organization does not have the funds on hand, a local credit union agreed to provide the funds via a kan that will be repaid using the grant. The ban has an interest rate of 4.5% and taxes are assessed at 35% (Details listed in Figure 4) Figure 4: Financing and Tax Information Value of Reimbursement Community Project $10,000 Grant Loan $10,000 at 4.5% TAS WACC 35% 45% Conclusion Mr. Ashton stared at the information given to him by Ms. Taylot. Questions whitled in his head. Which project (the computer purchases without the upgrades, the computer purchases with the upgrades or the book purchases) was best? How should be compare the projects since none were revemue generating alternatives? Which option maximizes the social welfare of the community