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00069040- IMPORTANT Questions 1 & 2 ask for cash flows only, no present values. They are a critical part of the problem, but since the problem is primarily about capital budgeting, they are not worth any points, and you have unlimited tries. Questions 3 & 4 require that you use the correct cash flows from 1 and 2 to determine the net present values of the two alternatives. You should use the present value tables in the Coursepack. The Brisbane Manufacturing Company produces a single model of a CD player. Each player is sold for $199 with a resulting contribution margin of $72. Brisbane's management is considering a change in its quality control system. Currently, Brisbane spends $40,000 a year to inspect the CD players. An average of 2,000 units turn out to be defective - 1,400 of them are detected in the inspection process and are repaired for $85. If a defective CD player is not identified in the Inspection process, the customer who receives it is given a full refund of the purchase price. The proposed quality control system involves the purchase of an x-ray machine for $220,000. The machine would last for five years and would have salvage value at that time of $20,000 Brisbane would also spend $460,000 immediately to train workers to better detect and repair defective units. Annual inspection costs would increase by $21,000. This new control system would reduce the number of defective units to 370 per year. 320 of these defective units would be detected and repaired at a cost of $43 per unit. Customers who still received detective players would be given a refund equal to 120% of the purchase price Questions 1 20 points; unlimited tries) 1. What is the Year 2 cash flow if Brisbane keeps using its current system? 278.400.00 Incorrect. Tries 5/99 Previous Tres 2. What is the Year 2 cash flow Brisbane replaces its current system? 6.700 Incorrect. Tres 1/99 Previous Toies Questions 324 [5 points each; 5 tries each) (NOTE: When computing present values, use the present value factors from the tables on page 118 in the Coursepack) 3. Assuming a discount rate of what is the net present value of Brisbane keeps using its current system? Submit Incorrect. Tries 1/5 Previous Tres 4. Assuming a discount rate of what is the net present value if Brisbane replaces its current system

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