Vaughn Company is considering a capital investment of $216,000
in additional productive facilities. The new machinery is expected
to have a useful life of 5 years with no salvage value.
Depreciation is by the straight-line method. During the life of the
investment, annual net income and net annual cash flows are
expected to be $18,468 and $45,000, respectively. Vaughn has a 12%
cost of capital rate, which is the required rate of return on the
investment.
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(a)
Compute the cash payback period. (Round answer to 1
decimal place, e.g. 10.5.)
Cash payback period | years |
Compute the annual rate of return on the proposed capital
expenditure. (Round answer to 2 decimal places, e.g.
10.52%.)
Annual rate of return | % |
(b)
Using the discounted cash flow technique, compute the net present
value. (If the net present value is negative, use
either a negative sign preceding the number e.g. -45 or parentheses
e.g. (45). Round answer for present value to 0 decimal places, e.g.
125. For calculation purposes, use 5 decimal places as displayed in
the factor table provided.)
Net present value |
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