Q1.

Arnob, Badol, and Tarek were asked to consider two different cash flows: $
600 that they could receive today and $ 1200 that would be received 3 years from
today. Arnob wanted the $ 600 today, Badol chose to collect $ 1200 in 3 years, and
Tarek was indifferent between these two options. Can you explain the choice made
by each man?

Q2. Able Plastics, an injection-molding firm, has negotiated a contract with a

national chain of department stores. Plastic pencil boxes are to be produced for a 2-
year period. Able Plastics has never produced the item before and, therefore,
requires all new dies. If the firm invests $67,000 for special removal equipment to
unload the completed pencil boxes from' the molding machine, one machine
operator can be eliminated. This would save $26,000 per year. The removal
equipment has no salvage value and is not expected to be used after the 2-year
production contract is completed. The equipment, although useless, would be
serviceable for about 15 years. You have been asked to do a payback period
analysis on whether to purchase the special removal equipment. What is the
payback period? Should Able Plastics buy the removal equipment?

Q3. Some special handling devices can be obtained for $12,000. At the end of 4
years, they can be sold for $3,500. Compute the depreciation schedule for the
devices using the following methods: (a) Straight-line depreciation. (b) Sum-of-
years' -digits depreciation. (c) Double declining balance depreciation.