IMPORTANT Questions 1 & 2 ask for cash flows only, no present values. They are a critical part of the problem, but since the problem is primarily about capital budgeting, they are not worth any points, and you have unlimited tries. ------------------------------------------------------------

The Brisbane Manufacturing Company produces a single model of a CD player. Each player is sold for $184 with a resulting contribution margin of $74.

Brisbane's management is considering a change in its quality control system. Currently, Brisbane spends $41,000 a year to inspect the CD players. An average of 1,900 units turn out to be defective: 1,520 of them are detected in the inspection process and are repaired for $75. If a defective CD player is not identified in the inspection process, the customer who receives it is given a full refund of the purchase price.

The proposed quality control system involves the purchase of an x-ray machine for $190,000. The machine would last for four years and would have salvage value at that time of $20,000. Brisbane would also spend $460,000 immediately to train workers to better detect and repair defective units. Annual inspection costs would increase by $23,000. Brisbane expects this new control system to reduce the number of defective units to 380 per year. 310 of these defective units would be detected and repaired at a cost of only $41 per unit. Customers who still receive defective players will be given a refund equal to 120% of the purchase price.

Questions 1 & 2 [0 points; unlimited tries] 1. What is the Year 2 cash flow if Brisbane keeps using its current system? $-224,920

2. What is the Year 2 cash flow if Brisbane replaces its current system? ????