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Problem Information Project A: Cost $5,000 25% Annual Net Cash Inflow $1,800 Life (Years) 5 Project B: Cost $5,000 Cash Inflow, Yr. 1 $500 Cash Inflow, Yr. 2 $1,200 Cash Inflow, Yr. 3 $2,000 Cash Inflow, Yr. 4 $2,500 Cash Inflow, Yr. 5 $2,000 Project C: Cost $5,000 Net cash flow per year $2,500 Life (Years) 5 Income-tax rate 25% Project D: Cost $5,000 Sales, per year $4,000 Cash expenditures, per year $1,500 Estimated Salvage Value $500 Income-tax rate 25% Project life (in years) 5 Minimum rate of return on investment 8% after-tax Annuity Factor, 4 years = 3.312 Annuity Factor, 5 years = 3.993 PV Factors: Yr 1 = 0.926 Yr 2 = 0.857 Yr 3 = 0.794 Yr 4 = 0.735 Yr 5 = 0.681 Solution Problem Information Par-Value of Bonds $5,000,000 Par-Value of Pref Stock Outstanding $5,000,000 Orig. selling price/sh pref stock $24 Par value per share, pref stock $25 Dividend per share, pref stock $3 Current market price per share, pref stock $30 Par value per share of common stock $10 Current market price per share, common stock $170 Coupon rate on bonds 9% Original issuance price, bonds 98% Current market value of bonds 110% Effective income tax rate 30% Est. cost of equity capital (after-tax) 20% Shares of common stock outstanding 50,000 Solution quirements receive the first payment on December 31, 2000. receive the first payment on January 1, 2000, the date the contract was signed. g the owner is in the 45 percent income tax bracket, calculate your answer for requirement 1. Exercise 20-37 After-Tax Net Present Value and IRR Purchase price and installation cost of new computer system $ 60,000 Cost to operate each year $ 30,000 Estimated useful life in years 4 Expected cost reduction per year $ 62,000 Cost of capital 10% Income tax bracket 30% Solution Exercise 20-38 Basic Capital Budgeting Techniques, Uniform Net Cash Inflows, Spreadsheet Application Purchase price of machine $ 500,000 Expected useful life in years 10 Expected net cash inflow per year $ 120,000 Percentage used to evaluate capital investments 12% Solution Exercise 20-39 Basic Capital Budgeting Techniques, Uneven Net Cash Inflows With Taxes, Spreadsheet Application Net Net Cash Cash Year Inflow Year Inflow 1 $ 50,000 6 $ 300,000 2 80,000 7 270,000 3 120,000 8 240,000 4 200,000 9 120,000 5 240,000 10 40,000 Purchase price of machine $ 500,000 Expected useful life in years 10 Percentage used to evaluate capital investments 12% Combined tax rate 30% Solution Exercise 20-40 Basic Capital Budgeting Techniques, Uneven Net Cash Inflows and MACRS Net Net Cash Cash Year Inflow Year Inflow 1 $ 50,000 6 $ 300,000 2 80,000 7 270,000 3 120,000 8 240,000 4 200,000 9 120,000 5 240,000 10 40,000 Purchase price of machine $ 500,000 Expected useful life in years 10 Percentage used to evaluate capital investments 12% Combined tax rate 30% Solution Exercise 20-41 Straightforward Capital Budgeting with Taxes Cost of new machine $ 30,600 Machine's estimated useful life 6 Estimated salvage value $ 600 Annual cost savings $ 8,000 Cost of capital 8% Income tax rate 40% Net after-tax annual cash inflow $ 5,000 PV factor, 8%, 6 years = 0.630 Annuity factor, 8%, 6 years = 4.623 Soution Exercise 20-42 Capital Budgeting with Tax and Sensitivity Analysis Cost of new machine $ 6,000 Expected useful life 10 Additional cash revenues per year $ 1,200 Income tax rate 35% PV Annuity Factor, 15%, 10 years 5.019 Solution Exercise 20-43 Basic Capital Budgeting Current market value of old machinery $ 1,800 Cost of new machinery $ 40,000 Annual pretax operating cash savings of new machinery $ 12,500 Useful life of new machine in years 4 Annual depreciation expense for new machine $ 10,000 Investment in working capital for new machine $ 3,000 Income tax rate 40% After-tax cost of capital 10% Solution Problem 20-44 Equipment Replacement and Strategic Considerations Background Problem Information AccuDril RoboDril X10 1010K Original purchase price $120,000 Estimated salvage value $20,000 Original life (years) 10 Elapsed time (usage, in years) 8 Est. overhaul cost, three years from now $100,000 Est. salvage value, new machine $0 Est. life of overhauled machine (years) 3 Effic. Gain, overhauled machine 20% Cost of new machine $250,000 Training costs, new machine $30,000 Est. salvage value, overhauled machine $0 Est. life, new machine (in years) 5 Units of output (per year) 10,000 10,000 Machine-hours 8,000 4,000 Var. operating cost per machine hour $10.00 $10.00 Selling price per unit $100 $100 Variable manufacturing cost $40 $40 (not including machine-hours) Other annual expenses $95,000 $55,000 (tooling and supervising) Disposable value—today $25,000 Trade-in allowance for new machine $40,000 Disposable value—in five years 0 $50,000 Devine Instrument Company’s wtd-average cost of capital (WACC) Tax rate 20-44 Requirements 1. Determine the effect on cash flow for items that differ for the two alternatives. 2. Compute the payback period for purchasing RoboDril 1010K rather than having AccuDr in two years. 3. What is the present value of each decision alternative? 4. What other factors, including strategic issues, should the firm consider before making th Solution ic Considerations 12% 40% the two alternatives. 10K rather than having AccuDril X10 overhauled firm consider before making the final decision? Problem 20-45 Sensitivity Analysis Background Problem Information AccuDril X10 RoboDril 1010K Original purchase price $120,000 Estimated salvage value $20,000 Original life (years) 10 Elapsed time (usage, in years) 8 Est. overhaul cost, three years from now $100,000 Est. salvage value, new machine $0 Est. life of overhauled machine (years) 3 Effic. Gain, overhauled machine 20% Cost of new machine $250,000 Training costs, new machine $30,000 Est. salvage value, overhauled machine $0 Est. life, new machine (in years) 5 Units of output (per year) 10,000 10,000 Machine-hours 8,000 4,000 Var. operating cost per machine hour $10.00 $10.00 Selling price per unit $100 $100 Variable manufacturing cost $40 $40 (not including machine-hours) Other annual expenses $95,000 $55,000 (tooling and supervising) Disposable value—today $25,000 Trade-in allowance for new machine $40,000 Disposable value—in five years 0 $50,000 Devine Instrument Company’s wtd-average cost of capital (WACC) Tax rate 20-45 Requirements 1. What is the maximum machine operating cost of the overhauled AccuDril for the replace decision to be an incorrect financial decision? 2. Use the Goal Seek function in Excel to determine the maximum amount that the annual operating costs for the new machine can be before changing the decision. 3. New technologies make it possible to overhaul this machine now for $80,000. Both the cost and the undepreciated cost (book value) of the existing asset are to be depreciated overhaul will improve its productivity by 20 percent and reduce the cost of a major overh years from now to $30,000. All overhaul costs will be depreciated using the straight-line overhaul, the machine will have no salvage value. Either overhaul can be scheduled du maintenance and will not affect production. Despite the old saying, ―If it ain’t broke, don you overhaul it now or wait for two years to do the overhaul as planned originally, assum that no funds are currently available to purchase RoboDril 1010K? 4. Performing the overhaul now also improves product quality. Management believes that quality improvement is rather subtle and very difficult to quantify. Should the firm overha Solution 12% 40% AccuDril for the replacement amount that the annual after-tax decision. for $80,000. Both the overhaul et are to be depreciated over two years. The he cost of a major overhaul two d using the straight-line method. With either ul can be scheduled during regular g, ―If it ain’t broke, don’t fix it,‖ should anned originally, assuming agement believes that the Should the firm overhaul now? Problem 20-46 Comparison of Capital Budgeting Techniques, Sensitivity, Analy Background Problem Information Per Unit Sales price $195 Variable costs Manufacturing $90 Marketing 10 $100 Fixed costs Manufacturing $45 Other 25 70 $170 Net income $25 Current capacity level (units) 10,000 Estimated demand (units) 25,000 Duration of increased demand (years) 4 Investment cost, year 0 $995,000 Estimated salvage value, after 4 years $195,000 Estimated salvage value, after 10 years $35,000 Estimated life of new equipment (in years) 10 % increase in capacity 200% Additional fixed mfg costs (beyond deprec) $250,000 per year After-tax discount rate (WACC) 14% Income tax rate 30% Additional fixed mktg costs per year $200,000 Increase in output volume (units) 10,000 20-46 Requirements 1. Assume that the equipment will be depreciated over a four-year period. What effects wi equipment have on net income in each of the four years? 2. What effect will the new equipment have on cash flows in each of the four years? 3. Compute the proposed investment’s payback period (in years) 4. Compute the book rate of return (ARR) based on the average investment. 5. Compute the net present value (NPV) of the proposed investment 6. Compute the internal rate of return (IRR) of the proposed investment 7. Management has decided to invest in the new equipment, but is unsure of the reliability of the estimates and as such has asked some what-if questions. Treat each of the follow cases independently. a. By how much can the unit variable cost for units produced by the new equipmen still justify the purchase of the equipment (i.e., have the investment generate an exactly 14 percent, its cost of capital)? b. The company is anticipating an increase in competition. Management believes t response, it will have to reduce the selling price of the product. By how much ca the selling price (of all units sold) and still be able to justify the purchase of the n Solution s, Sensitivity, Analysis eriod. What effects will the new the four years? nsure of the reliability of some Treat each of the following two by the new equipment increase and estment generate an after-tax IRR of anagement believes that, in duct. By how much can the firm decrease the purchase of the new equipment? Problem 20-47 Replacing a Small Machine: Capital Budgeting Techniques and Background Problem Information Machine in Use SP1000 Capacity 10,000 units/year 18,000 Materials $4.00 per unit $3.00 Labor and other variable costs $1.00 per unit $0.20 Maintenance costs $1.00 per unit $0.10 $6.00 per unit $3.30 Current contract: Number of units/year 10,000 Selling price, per unit $5.00 (For simplicity, assume that all revenues and expenses are received and paid at year-end Additional information: Current disposal value of existing machine $3,000 Disposal value of machine five years from now $1,000 Remaining life of existing machine, in years 5 Estimated life of new machine, in years 5 Cost of new machine $100,000 Estimated salvage value of new machine, five years $5,000 Discount rate (WACC) 10.00% Income tax rate 20.00% Depreciation expense on existing machine, per year $0 20-47 Requirements Compute 1. The effects on the cash flow each year, including year 0, if the new machine is purchas 2. The net present value (NPV) of the new machine. 3. The payback period of the new machine. 4. The internal rate of return (IRR) on the new machine, assuming that the new machine’s cash inflows are $25,000 and that neither the new machine nor the existing machine wi value at the end of the five-year period. 5. The internal rate of return (IRR) assuming that the after-tax cash in flows are as follows the estimated salvage value for both machines at the end of five years is $0. Year 0 $0 (see below) Year 1 $20,000 Year 2 $22,000 Year 3 $25,000 Year 4 $30,000 Year 5 $40,000 6. By how much can the variable costs of the new machine increase (or decrease) and the be indifferent on the replacement, assuming all the other costs will be as estimated? Solution eting Techniques and Sensitivity Analysis SP1000 units/year per unit per unit per unit per unit ved and paid at year-end.) new machine is purchased. g that the new machine’s annual r the existing machine will have salvage sh in flows are as follows and that e years is $0. ase (or decrease) and the company ll be as estimated? Problem 20-48 Capital Budgeting with Sum-of-Years’-Digits Depreciation Background Bernie Company purchased a new machine, with an estimated useful life of five years and The machine is expected to produce net cash inflows from operations, before income taxe Year 1 $9,000 Year 2 $12,000 Year 3 $15,000 Year 4 $9,000 Year 5 $8,000 Problem Information Investment outlay, year 0 $45,000 Estimated salvage value, year 5 $0 Estimated useful life (years) 5 Percent for evaluating capital investments Income tax bracket 20-48 Requirements Set up an Excel spreadsheet to determine: 1. The Payback period of the proposed investment. 2. The Net present value (NPV) of the proposed investment. 3. The Internal rate of return (IRR) of the proposed investment. 4. The discounted payback period of the proposed project (CPA Adapted) Solution igits Depreciation useful life of five years and no salvage value, for $45,000. rations, before income taxes, as follows: 10% 24% Problem 20-49 Working Backward: Determine Initial Investment Based on Book Background Problem Information Life of new machine 10 years Estimated salvage value $0 Net before tax cash inflow $6,750 Book rate of return (ARR) 10% The firm’s tax rate 20% 20-49 Requirements What is the cost of the new machine? (CPA Adapted) Solution vestment Based on Book Rate of Return Problem 20-50 Working Backward: Determine Initial Investment Based on Inter Background Problem Information Useful life 6 years Estimated salvage value $0 Expected annual cash inflow from operations $20,000 Time-adjusted rate of return (IRR) 10% Tax bracket 20% 20-50 Requirements What was the cost of the machine? (CPA Adapted) Solution tment Based on Internal Rate of Return Problem 20-51 Working Backward: Determine Periodic Cash Flow Based on Bo Background Problem Information Useful life 5 years Estimated salvage value $0 New machine $60,000 Book rate of return 15% The firm’s tax rate 25% 20-51 Requirements What is the expected annual pre-tax cash flow from operations from this investment? (CPA Adapted) Solution Cash Flow Based on Book (Accounting) Rate of Return om this investment? Problem 20-52 Machine Replacement and Sensitivity Analysis Without Conside Background Problem Information Model KC12 $5,000 The estimated salvage value $600 Estimated life 11 Model AC1 Purchase price $8,000 Current salvage value, Model KC12 $3,000 Estimated savings per year, cash operating costs $750 Estimated salvage value, Model AC1 $400 Estimated life of model AC1 10 Discount rate (WACC) 12.00% 20-52 Requirements 1. Compute, for AC1, the a. Payback period. b. Book rate of return (ARR) using the average investment; assume that any loss on th of the existing machine is spread out evenly over the 10-year life of the new machine c. Net present value. (NPV) d. Internal rate of return. (IRR) 2. Should the firm purchase AC1? Why? 3. What is the minimum (or maximum) savings that AC1 must have without altering your d Solution is Without Considering Taxes me that any loss on the disposal e of the new machine. ithout altering your decision in requirement 2? Problem 20-53 Value of Accelerated Depreciation Background Problem Information Cost of new asset $100,000 Estimated life of asset, in years 4 Estimated salvage value $0 Discount rate 8% Income tax rate 40% 20-53 Requirements 1. What is the present value of the tax benefits resulting from calculating depreciation usin the sum-of the- years’-digits method as opposed to the straight-line method on this asse 2. What is the present value of the tax benefits resulting from calculating depreciation usin the doubledeclining-balance method as opposed to straight-line method on this asset? 3. What is the present value of the tax benefits resulting from using MACRS as opposed t depreciation? The asset qualifies as a three-year asset. Use the half-year convention. (CPA Adapted) Solution ting depreciation using e method on this asset? ting depreciation using ethod on this asset? MACRS as opposed to straight-line alf-year convention. Problem 20-54 Capital Budgeting with Sensitivity Analysis Background Problem Information Income Statement for 2007 Rental revenue $2,000,000 Expenses Operations $950,000 Administration 70,000 Property taxes 280,000 Depreciation (straight line) 100,000 1,400,000 Net income before taxes $600,000 Income taxes at 40 percent 240,000 Net income after taxes $360,000 Years remaining on lease 8 Bank lending rate 12% Owner's Cost of capital (discount rate) 10% Investor group's cost of capital 12% Seller's tax bracket 40% Buyer's tax bracket 30% PV Annuity Factor (Table 2, page 871), 8 years, 12% = 4.968 PV Annuity Factor (Table 2, page 871), 8 years, 10% = 5.335 20-54 Requirements 1. What is the maximum the buyer should pay? 2. What is the minimum selling price Meidi can accept if she has to pay George a 5 percen assume that Meidi would want to be compensated for the lost rental incomes, plus any she’d have to pay in conjunction with the sale, plus the sales commission paid to the br 3. What is the maximum the buyer would be willing to pay if the purchase is for a MACRS Use the half-year convention. Solution ysis has to pay George a 5 percent commission? ost rental incomes, plus any capital gains tax es commission paid to the broker. he purchase is for a MACRS five-year property? Problem 20-55 Cash Flow Analysis and NPV Background Problem Information Leasing per month $5,000 Warehouse’s estimated sales value $200,000 Buildings original cost $60,000 Depreciation $1,500 Current net book value $7,500 Remodeling cost $100,000 Est salvage value, remodeling cost $0 Years for depreciation 5 Increm Invest in Net W/Capital $600,000 Recovering of Investment in Net W/C $600,000 Warehouse will be condemned (in years) 10 Receive from the condemnation $200,000 Sales $900,000 Operation expenses $500,000 Nonrecurring sales promotion costs $100,000 Nonrecurring termination costs (at the end of year 5) $50,000 The minimum annual rate of return 14% Tax bracket 40% 20-55 Requirements 1. Show how you would handle the individual items in determining whether the company s to lease the space or convert it to a factory outlet. 2. After analyzing all relevant data, compute the net present value. Indicate which course only on these data, should be taken. Solution ining whether the company should continue value. Indicate which course of action, based Problem 20-56 Machine Replacement with Tax Considerations Background Problem Information Special-purpose molding machine cost $2,500,000 Original est life of molding machine 4 years Remaining useful life of molding machine 3 years Current salvage value of molding machine $300,000 Salvage value of molding machine in 3 yrs $50,000 New, vastly more efficient machine $2,000,000 Current cash manufacturing costs per year $1,800,000 Revised cash mfg costs per year $1,000,000 Disposal value $0 Income tax rate 45% Discount rate (cost of capital) 8.00% 20-56 Requirements Using the net present value technique, show whether the firm should purchase the new m Solution ns purchase the new machine. Problem 20-57 Equipment Replacement Background Problem Information Computer desk $30 Annual normal capacity 100,000 Direct labor per hour $8.00 Time to produce a desk (hours) 2 Desk requires (board feet) 8 Hard board cost (per board foot) $0.25 Fixed costs $25,000 Variable costs $0.30 Saw carrying (book) value $20,000 Saw Depreciation $2,000 Expected salvage value $0 Utility costs increase (per unit) $0.10 New saw cost $100,000 Estimated useful life (years) 10 Estimated salvage value $10,000 Old one to Whalers $4,000 Reduction in DL cost, if new saw purchased 50.00% Income tax rate 40% Expected after-tax return on investment 15% 20-57 Requirements 1. As a financial analyst for Oilers, you are charged with analyzing the purchase of the new preparing a report for the president, you must determine the following for management’ a. The contribution margin per unit under current operating conditions. b. The standard overhead rate (application rate) per unit under current operating co c. The budget line for indirect manufacturing costs (manufacturing overhead), assum and installation of the new saw. d. The new saw’s manufacturing overhead standard rate (application rate) per unit, b capacity of 100,000 units. e. The contribution margin per unit, assuming the sales price remains unchanged, if purchased and installed. f. The net additional investment for the new saw, assuming that Oilers decides to pu g. The expected net additional cash flow per year if the new saw is purchased and in the company sells all that it produces. 2. The firm will be able to reduce approximately half of the hourly production workers curre if the new saw is purchased. The plant has been in its current location for more than 50 40 percent of the households in this small southeast Ohio town have at least one mem the firm. Should the firm purchase the state-of-the-art equipment? (IMA Adapted) Solution nalyzing the purchase of the new saw. In e the following for management’s consideration: erating conditions. unit under current operating conditions. manufacturing overhead), assuming the purchase rate (application rate) per unit, based on a normal les price remains unchanged, if the new saw is suming that Oilers decides to purchase and install it. he new saw is purchased and installed. Assume that hourly production workers currently on its payroll current location for more than 50 years. Over hio town have at least one member who works for equipment? Problem 20-58 Equipment Replacement, MACRS Background Problem Information Existing Pump: Original Cost $400,000 Time (hours) per unit produced 6 hours New pump’s cost $608,000 Installing, testing, and debugging $12,000 Salvage value, end of 4 years $80,000 MACRS rates (rounded) would be as follows: Year 1 33% Year 2 45% Year 3 15% Year 4 7% Current salvage value of old pump $50,000 Selling price per unit $3,500 Current full-cost per unit produced $2,450 Annual pretax cash savings $125,000 Output is expected to increase by: units in 2010 30 units in both 2011 and 2012 50 units in 2013 70 Time (hours) per unit produced 2 hours Reduction in manufacturing costs $150 (per unit, in addition to the $125 Income tax rate 40% After-tax discount rate (WACC) 15% 20-58 Requirements 1. Determine whether VacuTech should purchase the new pump by calculating the net pre January 1, 2010, of the estimated after-tax cash flows that would result from its acquisiti 2. Describe the factors, other than the net present value, that VacuTech should consider b pump replacement decision. (CMA Adapted) Solution unit, in addition to the $125,000 savings noted above) mp by calculating the net present value at ould result from its acquisition. VacuTech should consider before making the Problem 20-59 Joint Venture Background Problem Information Joint venture (percent ownership) 49% Required investment outlay $3,000,000 Equity interest (percent of the expected net cash flows)80% Expected yearly net cash flows $900,000 Expected time frame (years) 10 Cost of capital 10% Minimum acceptable IRR 20% PV annuity factor, 10 years, 20% = 4.192 20-59 Requirements Should Perez invest in the project? Solution Problem 20-60 Risk and NPV Background Problem Information Acquisition cost $1,500,000 After-tax net cash inflow per year $275,000 Life of project (in years) 12 Current after-tax cost of capital 12% Revised (alternative) cost of capital 15% PV annuity factor: 12 years, 12% = 6.1940 PV annuity factor: 12 years, 15% = 5.4210 20-60 Requirements 1. Should Morgan accept the project if its after-tax cost of capital is 12 percent? 2. If Morgan is correct and uses 15 percent, does that change the investment decision? 3. Use the built-in function in Excel to estimate the project’s IRR. Use the Goal Seek funct calculate the maximum amount that can be invested up front in order to generate an ec return equal to the 15 percent rate of return specified by management as appropriate fo investment. 4. Is adjusting the discount rate or the desired rate of return an effective way to deal with r Solution capital is 12 percent? nge the investment decision? s IRR. Use the Goal Seek function in Excel to front in order to generate an economic rate of management as appropriate for the proposed n an effective way to deal with risk or uncertainty? Problem 20-61 Sensitivity Analysis Background Problem Information Initial outlay $3,500,000 After-tax net cash inflows $600,000 Original estimate, investment life (years) 15 Plant’s useful life (i.e., alternative estimate) 12 Cost of capital 14% PV annuity factor, 15 years, 14% 6.142 PV annuity factor, 12 years, 14% 5.660 20-61 Requirements 1. Will the project be accepted if 15 years’ useful life is assumed? What if 12 years of usef 2. How many years will be needed for the Seattle facility to earn at least a 14 percent retu Solution What if 12 years of useful life is used? least a 14 percent return? Problem 20-62 Uneven Cash Flows , NPV Background Problem Information Net cash inflows: year 0 (initial investment outlay) ($15,000,000) year 1 $0 year 2 $1,000,000 year 3 $1,000,000 year 4 $2,500,000 year 5 $3,000,000 year 6 $3,000,000 year 7 $3,000,000 year 8 $3,000,000 year 9 $3,000,000 year 10 $3,000,000 Lease agreement expires (end of year) 10 Cost of capital 12% PV annuity factor, 6 years, 12% 4.111 20-62 Requirements Compute the net present value and the IRR for this venture. What is the break-even sellin for this investment, i.e., the price that would yield a NPV of $0? Solution at is the break-even selling price Problem 20-63 Environment Cost Management Background Problem Information Powder Paint System Solvent Paint System Initial investment $400,000 $1,200,000 Unit paint cost 0.19 0.2 Estimated life in years 10 10 Annual units 2,000,000 2,000,000 The firm will incur additional environmental costs with the solvent paint system but not with powder paint system. The firm estimates annual environmental costs for the solvent paint follows: Units Unit Cost Monthly pit cleaning 12 $1,000 Hazardous waste disposal 183 3,000 Superfund fee 18,690 0.17 Worker training 2 1,500 Insurance 1 10,000 Amortization of air-emission permit 0.2 1,000 Air-emission fee 44.6 25 Record keeping 0.25 45,000 Wastewater treatment 1 50,000 Discount rate (WACC) 12% Income tax rate 40% MACRS depreciation percentages, 10-year property: Year % 1 10.00% 2 18.00% 3 14.40% 4 11.52% 5 9.22% 6 7.37% 7 6.55% 8 6.55% 9 6.56% 10 6.55% 11 3.28% 100.00% 20-63 Requirements 1. What is the difference in cost in today’s dollar for the two systems? 2. What is the most the firm is willing to pay for the powder-based system? (Adapted from German Boer, Margaret Curtin, and Louis Hoyt, ―Environmental Cost Ma Management Accounting [September 1998], pp. 28–38.) Solution system but not with the r the solvent paint system as ronmental Cost Management,‖