A shoe manufacturer is evaluating new equipment that would custom fit athletic shoes. The new equipment costs $90,000 and will generate $35,000 in net cash flows for five years. Determine the break-even time for this equipment.

Heels, a shoe manufacturer, is evaluating the costs and benefitsof new equipment that would custom fit each pair of athletic shoes.The customer would have his or her foot scanned by digital computerequipment; this information would be used to cut the raw materialsto provide the customer a perfect fit. The new equipment costs$111,000 and is expected to generate an additional $44,000 in cashflows for 5 years. A bank will make a $111,000 loan to the companyat a 12% interest rate for this equipment’s purchase. Use thefollowing table to determine the break-even time for thisequipment. All cash flows occur at year-end. (PV of $1, FV of $1,PVA of $1, and FVA of $1) (Use appropriate factor(s) fromthe tables provided.)

New Equipment Cost: $ 2,500,000.00
Cost of Financing: 6.50%
Lease term: 4 Years

1. Determine the monthly paymentfor the new lease for the new equipment?

2. Assuming that other existing variable and fixedcosts carryover for the next 4 years and that this is an

operating lease, what is the net present value of the equipmentassuming a 12% discount rate?

The FMV of selling the equipment is $500,000 at the end of thelease.

(Variable Costs : 46,825 Fixed Costs: 106,242.10)

1.

Average Rate of Return—New Product

Pocket Pilot Inc. is considering an investment in new equipment that will be used to manufacture a mobile communications device. The device is expected to generate additional annual sales of 4,600 units at $186.00 per unit. The equipment has a cost of $470,600, residual value of $35,400, and an eight-year life. The equipment can only be used to manufacture the device. The cost to manufacture the device is shown below.

Determine the average rate of return on the equipment. If required, round to the nearest whole percent.

2.

Average Rate of Return—Cost Savings

Master Fab Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $104,000 with a $9,000 residual value and a five-year life. The equipment will replace one employee who has an average wage of $41,500 per year. In addition, the equipment will have operating and energy costs of $10,070 per year.

Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment. If required, round to the nearest whole percent.