Posted: April 30th, 2016

a. Determine the objective function. Is it a minimization or maximization function?

Cost of capital is 10 percent.

Bert uses the straight-line method of depreciation with mid-year convention for tax purposes. In addition, its tax rate is 40 percent and the depreciable life of the equipment is four years with no salvage value. The equipment is sold at the end of the fifth year.

Required:

Determine the following amounts using after-tax cash flows:

a. Payback period
b. Accounting rate of return on original investments for each year
c. Net present value

5. Cardinal Dry Cleaners has 400 hours a week available to use in dry cleaning or laundry. Four thousand inches of hanging space is available. The average item that is dry cleaned takes six inches of hanging space, whereas laundry items take up only three inches of hanging space. The contribution margin for laundry items averages $3.50; dry cleaned items average $6.50. Fifty items can be washed per hour, whereas only twenty can be dry cleaned.

Required:

a. Determine the objective function. Is it a minimization or maximization function?
b. Set up the constraint equations.