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x-G Internal rate ofreturn or × G Culver e https//edugen on311 Q Patrots Sports Radic H al z o D corrunks D Google Docs ,"(144) Twitter Google Search × allen 10 PRINTER VERSION NEXT Exercise 16-10 Sheffield Company is considering a capital investment of $190,300 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 $13,000 and $49,000, respectively. Sheffield has a 12% cost of capital rate, which is the required rate of return on the investment Compute the cash payback period. (Round answer to 2 decimal places, e.g. 10.50) Cash payback period years t the annual rate of return on the proposed capital expenditure. (Round answer to 2 decimal places, e.g. 10.50.) tudy Using the discounted cash flow technique, compute the net present value. (If the net present value is or parentheses e.g. (45). Round answer for present value to 0 decimal plac table provided.) negative, use either a negative sign preceding the number e.g. 45 es, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor Net present value SAVE FOR LATER SURHET ANSWER Question Attempts: 0 of 5 used na ist iiti Asan.inc.A Rights Reserved. A Dreson ofExplanation / Answer
Answer a.
Initial investment = $190,300
Net Annual Cash flow = $49,000
Payback Period = Initial investment / Net Annual Cash flow
Payback Period = $190,300 / $49,000
Payback Period = 3.88 years
Answer b.
Initial investment = $190,300
Annual Net Income = $13,000
Average Investment = $190,300 / 2
Average Investment = $95,150
Accounting Rate of Return = Annual Net Income / Average Investment
Accounting Rate of Return = $13,000 / $95,150
Accounting Rate of Return = 13.66%
Answer c.
Initial investment = $190,300
Net Annual Cash flow = $49,000
Cost of Capital = 12%
NPV = -$190,300 + $49,000 * PVA of $1 (12%, 5)
NPV = -$190,300 + $49,000 * (1 - (1 / 1.12)^5) / 0.12
NPV = -$13,666
So, NPV of this project is -$13,666
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