Problem $26\mathrm{.}1$A $($Algo$)$ Capital Budgeting and Determination of Annual Net Cash Flows $($LO$26-1,$ LO$26-2,$ LO$26-3,$ LO$26-4)$

Toying With Nature wants to take advantage of children's fascination with dinosaurs by adding several scale$-$model dinosaurs to its existing product line. Annual sales of the dinosaurs are estimated at $80,000$ units at a price of $$6$ per unit. Variable manufacturing costs are estimated at $$2\mathrm{.}50$ per unit, incremental fixed manufacturing costs $($excluding depreciation$)$ at $$45,000$ annually, and additional selling and general expenses related to the dinosaurs at $$56,000$ annually.

To manufacture the dinosaurs, the company must invest $$350,000$ in design molds and special equipment. Because toy fads wane in popularity rather quickly, Toying With Nature anticipates the special equipment will have a three$-$year service life with only a $$20,000$ salvage value. Depreciation will be computed on a straight$-$line basis. All revenue and expenses other than depreciation will be received or paid in cash. The company's combined federal and state income tax rate is $40$ percent.

Required:

a$.$ Prepare a schedule showing the estimated increase in annual net income from the planned manufacture and sale of dinosaur toys.

b$.$ Compute the annual net cash flows expected from this project.

c$.$ Compute for this project the $(1)$ payback period, $(2)$ return on average investment, and $(3)$ net present value, discounted at an annual rate of $15$ percent. Round the payback period to the nearest tenth of a year and the return on average investment to the nearest tenth of a percent. Use Exhibits $26-3$ and $26-4$ where necessary.

Complete this question by entering your answers in the tabs below.

Required $A$

Required B

Required C

Compute for this project the $(1)$ payback period, $(2)$ return on average investment, and $(3)$ net present value, discounted at an annual rate of $15$ percent. Round the payback period to the nearest tenth of a year and the return on average investment to the nearest tenth of a percent. Use Exhibits $26-3$ and $26-4$ where necessary.

Note: Round your $"$PV factors" to $3$ decimal places, payback period and the return on average investment answers to $1$ decimal place. Round net present value to the nearest whole dollar amount.

$\backslash$table$[[(1)$ Payback period,$2\mathrm{.}3,$years$],[(2)$ Return on average investment,$11\mathrm{.}8,\%$