What is the cash payback period for this proposal? (Round answer to 2 decimal pl
ID: 2489875 • Letter: W
Question
What is the cash payback period for this proposal? (Round answer to 2 decimal places, e.g. 10.50.)
CASH PAYBACK PERIOD ______________________YEARS
What is the cash payback period for this proposal? (Round answer to 2 decimal places, e.g. 10.50.)
ANNUAL RATE OF RETURN FOR THE INVESTMENT ____________%
What is the net present value of the investment? (Round answer to 0 decimal places, e.g. 125.)
NET PRESENT VALUE _________________$
BAP Corporation is reviewing an investment proposal. The initial cost and estimates of the book value of the investment at 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 book value. There would be no salvage value at the end of the investment’s life.Investment Proposal Year Initial Cost
and Book Value Annual
Cash Flows Annual
Net Income 0 $105,190 1 69,220 $45,300 $9,330 2 42,350 39,100 12,230 3 21,260 35,300 14,210 4 6,840 29,300 14,880 5 0 24,600 17,760
BAP Corporation uses a 12% target rate of return for new investment proposals.
Click here to view the factor table.
(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Explanation / Answer
1. Calculation of Net Present Value (NPV);
NPV=Present value of cash infow (-) Present value of cash outflow
=1,29,323.62 (-) 1,05,190.00
=$24,133.62
Working Note-1
Calc of present value of cash inflow
2.Calc. of Payback period'
Payback Period= 2years+ 1,05,190-84,400/35,300
=2years+20,790/35,300
=2.58years
3.Calc. of annual rate of return om investment: = Average Income/ Average Investment*100
= 13,682/1,05,190*100
=13%
Working Note
Cal of Average Income= 9,330+12,230+14,210+14,880+17,760/5years
=13,682
Year Cash Flow 12% Factor Present Value 1 $45,300 0.8929 40,448.37 2 39,100 0.7972 31,170.52 3 35,300 0.7118 25,126.54 4 29,300 0.6355 18,620.13 5 24,600 0.5674 13,958.00 To 129323.62Related Questions
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