Problem 1 (Ignore taxes for this problem)

Ether Inc. is considering an option to buy injection molding machinery and has gathered the following information regarding this investment: The initial cost is estimated to be $180,000 and the machinery is expected to have a useful life of 5 years. Ether Inc.requires a minimum rate of return of 8%, and has calculated the following data pertaining to the purchase and operation of this machinery:

Year Estimated Annual Cash Inflows Estimated Annual Cash Outflows Depreciation

1 $ 40,000 $8,000 $28,000

2 $50,000 $18,000 $28,000

3 $75,000 $22,000 $28,000

4 $105,000 $35,000 $28,000

5 $110,000 $50,000 $28,000

Determine Ether Inc.'s payback period, accounting rate of return, and NPV for this investment?

Problem 2

Steeda Auto is planning on purchasing a hi-tech laser molding equipment. The expected cost of this equipment is $75,000, and it is expected to have a useful life of 6 years and an estimated salvage value of $3,000. The printer is expected to produce cash savings of $23,000 per year in reduced labor costs and the cash operating costs to run this printer are estimated to be $5,000 per year. Assume Steeda Auto is in the 34% tax bracket and has a minimum desired rate of return of 12% on this investment.

Determine the:

1. (a) payback period, (b) ARR, and (c) NPV (Ignoring taxes), and

2. (a) payback period, (b) ARR, and (c) NPV (Assuming taxes).