Question

Vilas Company is considering a capital investment of $186,200 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
$17,689 and $49,000, respectively. Vilas has a 12% cost of capital
rate, which is the required rate of return on the investment.

Click here to view the factor table.

**(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 |

Answer #1

Answer |
||

Explanation : |
||

Capital investment | $1,86,200 | |

Annual net income | $ 17,689 | |

Net annual cash flows | $ 49,000 | |

Cost of capital | 12% | |

Useful life | 5 Years |

Average Investment = (Capital investment + Salvage Value)/2 | |

= $186,200 / 2 | |

= $93,100 | |

1) |
Cash Payback Period = Capital investment / Net annual cash
flows |

= $186,200 / $49000 | |

= $3.80 | |

2) |
Annual Rate of Return = Annual Net Income/Average
Investment |

= $17,689 / $93,100 | |

= 19% | |

3) |
Net Present Value = - Capital investment + Net annual cash
flows *PVIFA(rate,nper) |

= -$186,200 + $49,000(3.60478) | |

= -$186,200 + $1,76,634 | |

= -$9,566 |

Vaughn Company is considering a capital investment of $216,000
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Depreciation is by the straight-line method. During the life of the
investment, annual net income and net annual cash flows are
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Click here to view...

Exercise 25-10 (Video)
Bramble Company is considering a capital investment of $185,500
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Depreciation is by the straight-line method. During the life of the
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annual net income and net annual cash flows are expected to be
$12,000 and $50,000, respectively. Vilas has a 12% cost of capital
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Compute the cash payback...

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Calculate the net present value on this project. (If
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Drake Corporation is reviewing an investment proposal. The
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the end of each year, the net cash flows for each year, and the net
income for each year are presented in the schedule below. All cash
flows are assumed to take place at the end of the year. The salvage
value of the investment at the end of each year is equal to its
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Yappy Company is considering a capital investment of $320,000 in
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Instructions: Using each of the methods below, show ALL your
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Year
AA
BB
CC
1
$7,630
$10,900
$14,170
2
9,810
10,900
13,080
3
13,080
10,900
11,990
Total
$30,520
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Year
AA
BB
CC
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