Current Designs manufactures kayaks. Pedal Boats, Inc. has approached Current Designs about using its rotomold expertise and equipment to produce some pedal boat components for Pedal Boats Inc. Current Designs is interested in exploring this opportunity but is concerned that the pedal boats are a different shape than the kayaks it currently produces. Current Designs would need to buy an additional rotomold oven in order to produce the pedal boat components. This project clearly involves risks, and management wants to ensure the returns justify the risks. As an intern at Current Designs, you have been asked to prepare an initial evaluation of this proposal. To aid in your analysis, the following information and assumptions have been provided. Present Value tables are included in the 2nd worksheet tab for your use. Enter labels, cell references, formulas, and typed answers where indicated.

-Cost of the new rotomold oven $256,000 -Useful Life of the new rotomold oven in years 8
-Salvage Value of the new rotomold oven $8,000 -Depreciation Method Straight-Line
-Discount Rate 15% -Projected Annual Net Income for this project $15,200

1. Compute Annual Depreciation Expense. 2. Compute Net Annual Cash Flows
Depreciable Cost Formula LABEL Cell Reference
Estimated Life Cell reference LABEL Cell Reference
Annual Depreciation Expense Formula Net Annual Cash Flows Formula

3. Compute the Payback Period.
LABEL Cell Reference = Formula years
LABEL Cell Reference

4. What is the approximate Internal Rate of Return of this project? Type Answer 5. Based on the Internal Rate of Return, would this project be acceptable? Explain.
Type Answer

6. Use the space below to create your own net present value analysis. Your analysis should show all components used to compute net present value. In addition, you should, whenever possible, incorporate formulas and cell references in your analysis. You do not have to use all of the space provided. If you prefer, you can add an additional sheet to this file and create your analysis there. 7. Based on your Net Present Value Analysis, would this project be acceptable? Explain.

Type Answer

Cash Flow Discount Factor Present Value
Type Cell reference Value Formula 8. Change the tab name to Run 1
Type Cell reference Value Formula 9. Copy the tab and name it Run 2 and update with the following information:
Type Formula
Type Cell Reference Cost of the new rolomold oven $240,000
Type Formula Projected Annual Net Income $23,910