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3. Enviro Tech plans to replace an old piece of research equipment which is obsolete and becoming more unreliable under the stress of daily operations. The equipment is fully depreciated, and no salvage value can be realised upon its disposal. One piece of replacement equipment under consideration would provide annual cash savings of $42,000 before income taxes. The equipment would cost $108,000 and have an estimated useful life of five years. The equipment is expected to have no salvage value at the end of five years. Enviro Tech uses the straight line depreciation method on all equiment for both book and tax purposes. The company is subject to a 30 per cent tax rate. The company has an after tax required rate of return of 10 per cent Required: a. Calculate, for Enviro Tech's proposed investment in new equipment, the after- tax: using payback period, ARR, and NPV. Assume that all operating revenues and expenses occur at the end of the year. b. Identify and discuss the issues that Enviro Tech's management should consider when deciding which of the five decision models indetified in requirement (a) should be employed to evaluate alternative capital investment projects.1. Rob Sponge has been retained as a management consultant by Square Pants, Inc., a local specialty retailer, to analyze two proposed capital investment projects, projects X and Y. Project X is a sophisticated working capital and inventory control system based upon a powerful personal computer, called a system server, and PC software specifically designed for inventory processing and control in the retailing business. Project Y is a similarly sophisticated working capital and inventory control system based upon a powerful personal computer and general- purpose PC software. Each project has a cost of $20,000, and the cost of capital for both projects is 10%. The projects= expected net cash flows are as follows: Expected Net Cash Flow Year Project X Project Y 0 ($20,000) ($20,000) $13,000 $7,000 $6,000 $7,000 $6,000 $7,000 A W $2,000 $7,000 Required: a. Calculate each project nominal payback period, Net present value ( NPV), and Profitability Index b. Which project should be accepted?4. There are two mutually exclusive projects under active consideration of a company. Both the projects have a life of 5 years and have initial cash outlays of$ 1,000,000 each. The company pays tax at 40% rate and the maximum required rate of the company has been given as 20%. The straight line method of depreciation will be charged on the projects. The projects are expected to generate a net cash how before taxes as follows: m_m __ 300 000 250 000 \"mmmm 300 000 _ 500 000 __ 200 000 Calculate for each project and based on the calculations, advice the company which project should be accepted with the reasons. a. Payback period b. Accounting Rate of Retum c. Net Present Value 2. The Maple Ridge City Council is considering the construction of a longer runway at the existing city airport. Currently, the airport can handle only private aircraft and small commuter jets. A new, long runway would enable the airport to handle the midsize jets used on many domestic flights. Data pertinent to the board's decision appear below. Cost of acquiring additional land for runway $70,000 Cost of runway construction 200,000 Cost of extending perimeter fence 29,840 Cost of runway lights 39,600 Annual cost of maintaining new runway 28,000 Annual incremental revenue from landing fees 40,000 In addition to the preceding data, two other facts are relevant to the decision. First, a longer runway will require a new snowplow, which will cost $100,000. The old snowplow could be sold now for $10,000. The new, larger plow will cost $12,000 more in annual operating costs. Second, the City Council believes that the proposed long runway, and the major jet service it will bring to the city, will increase economic activity in the community. The Council projects that the increased economic activity will result in $64,000 per year in additional tax revenue for the city. In analyzing the runway proposal, the Council has decided to use a 10-year time horizon. The city's hurdle rate for capital projects is 12 percent Required: a. Prepare a net present value analysis of the proposed long runway b. Should Council approve the runway