# 3.John has just won the Flyball Lottery. He has two options for receiving his prize. The first option is to accept a \$135,000 cash payment today. The second option is to receive \$17,700 at the end of

3.Johnhas just won the Flyball Lottery. He has two options for receiving his prize. The first option is to accept a \$135,000cash payment today. The second option is to receive \$17,700at the end of each of the next19years and a \$37,900lump sum payment in the20th year.Johncan invest money at a10% rate.(a)Calculate the present value of the two options.(For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)(b)IfJohncould invest money at13%, calculate the present value of the two options.(For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)4.Flounders Lawn Service needs to purchase a new lawnmower costing \$8,416to replace an old lawnmower that cannot be repaired. The new lawnmower is expected to have a useful life of6years, with no salvage value at the end of that period.(a)IfFlounders required rate of return is11%, what level of annual cash savings must the lawnmower generate to be considered an acceptable investment under the net present value method?(For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)Annual cash savings should be?(b)IfFlounders required rate of return is18%, what level of annual cash savings must the lawnmower generate to be considered an acceptable investment under the net present value method?(For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)Annual cash savings should be?5.TheBrambleCompany is planning to purchase \$487,000of equipment with an estimated7-year life and no estimated salvage value. The company has projected the following annual cash flows for the investment:YearProjected Cash Flows1 \$207,0002 132,0003 109,0004 51,7005 61,2006 44,4007 46,300Total \$651,600Calculate the net present value of the proposed equipment purchase.Brambleuses a6% discount rate.(For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)Net present value?11.WilliamBrownis evaluating two new business opportunities. Each of the opportunities shown below has a 15-year life.Williamuses a12% discount rate. Option 1 Option 2Equipment purchase and installation \$71,200 \$82,800Annual cash flow \$29,000 \$31,130Equipment overhaul in year 6 \$4,710 -Equipment overhaul in year 8 – \$5,730(a) Calculate the net present value of the two opportunities.(Round present value factor calculations to 4 decimal places, e.g. 1.2514 and the final answers to 0 decimal places, e.g. 59,991.) Option 1 Option 2Net present value(b) Calculate the profitability index of the two opportunities.(Round answers to 2 decimal places, e.g. 15.25.) Option 1 Option 2Profitability Index12.FlintPix currently uses a six-year-old molding machine to manufacture silver picture frames. The company paid \$95,000for the machine, which was state of the art at the time of purchase. Although the machine will likely last another ten years, it will need a \$12,000overhaul in four years. More important, it does not provide enough capacity to meet customer demand. The company currently produces and sells9,000frames per year, generating a total contribution margin of \$92,500.Martson Molders currently sells a molding machine that will allowFlintPix to increase production and sales to12,000frames per year. The machine, which has a ten-year life, sells for \$138,000and would cost \$14,000per year to operate.FlintPixs current machine costs only \$8,000per year to operate. IfFlintPix purchases the new machine, the old machine could be sold at its book value of \$5,000. The new machine is expected to have a salvage value of \$20,200at the end of its ten-year life.FlintPix uses straight-line depreciation.(a)Calculate the new machines net present value assuming a14% discount rate.(For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)Net present value\$______?_______(b)Use Excel or a similar spreadsheet application to calculate the new machines internal rate of return.(Round answer to 2 decimal places, e.g. 1.25%.)Internal rate of return ______?___%(c)Calculate the new machines payback period.(Round answer to 2 decimal places, e.g. 1.25.)Payback period___?___years