Question

Vilas Company is considering a capital investment of $190,000 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 $12,000 and $50,000, respectively. Vilas has a 12% cost of capital rate, which is the required rate of return on the investment.

Compute the cash payback period.

Compute the annual rate of return on the proposed capital
expenditure. **(Round answer to 2 decimal places, e.g.
10.52%.)**

Using the discounted cash flow technique, compute the net present value.

Answer #1

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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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.
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Exercise 25-10 (Video)
Bramble Company is considering a capital investment of $185,500
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 $12,614 and $53,000, respectively. Bramble has a 12%
cost of capital rate, which is the required rate of return on the
investment.
Click...

Exercise 12-10 (Video) Vilas Company is considering a capital
investment of $197,600 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 $15,314 and $52,000, respectively. Vilas
has a 12% cost of capital rate, which is the required rate of
return on the investment. Click...

Yappy Company is considering a capital investment of $320,000 in
additional equipment. The new equipment is expected to have a
useful life of 8 years with no salvage value. Depreciation is
computed by the straight-line method. During the life of the
investment, annual net income is expected to be 25,000 and cash
inflows are expected to be $65,000. Yappy requires a 10% return on
all new investments.
Instructions: Using each of the methods below, show ALL your
work for calculating...

Part A: Capital Budgeting Decisions Chee Company has gathered
the following data on a proposed investment project: Investment
required in equipment............. $240,000 Annual cash
inflows.................................. $50,000 Salvage value
............................................ $0 Life of the
investment ............................... 8 years Required rate of
return .............................. 10% Assets will be
depreciated using straight line depreciation method
Required: Using the net present value and the internal rate of
return methods, is this a good investment?

A company is considering buying a new piece of machinery that
costs $20,000 and has a salvage value of $6,000 at the end of its
5-year useful life. The machinery nets $5,000 per year in annual
revenues. The internal rate of return (IRR) on this investment is
between__________.
A.
10%-11%
B.
12%-13%
C.
14%-15%
D.
13%-14%
E.
None of the above

Company is considering a long-term capital investment project
called ZIP. ZIP will require an investment of $120,000, and it will
have a useful life of 4 years. Annual net income is expected to be:
Year 1, $42,000; Year 2, $40,000; Year 3, $38,000, and Year 4,
$36,000. Depreciation is computed by the straight-line method with
no salvage value. The company’s cost of capital is 12%.
Required: Compute the net present value for the project.
(10 pts)

Culver Company is considering a long-term investment project
called ZIP. ZIP will require an investment of $133,200. It will
have a useful life of 4 years and no salvage value. Annual cash
inflows would increase by $82,300, and annual cash outflows would
increase by $45,300. Compute the cash payback period.
What is Cash payback period?

A company is considering investing in a piece of machinery that
will cost $550,000. It will provide an additional $160,000 in sales
each year and its annual cash operating expenses are expected to be
$52,000. Management plans to depreciate the machine on a
straight-line basis over a 10-year life with no estimated salvage
value. The company has a 40% tax rate. How much is net annual
operating cash flow expected if the machinery is acquired?

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