Exercise 26-11
Drake Corporation is reviewing an investment proposal. Theinitial cost and estimates of the book value of the investment atthe end of each year, the net cash flows for each year, and the netincome for each year are presented in the schedule below. All cashflows are assumed to take place at the end of the year. The salvagevalue of the investment at the end of each year is equal to itsbook value. There would be no salvage value at the end of theinvestmentâs life.
Investment Proposal
Year Initial Costand Book Value AnnualCash Flows Annual NetIncome
0 $105,700
1 69,800 $44,200 $8,300
2 43,000 40,400 13,600
3 21,100 35,000 13,100
4 7,000 29,000 14,900
5 0 26,000 19,000
Drake Corporation uses an 11% target rate of return for newinvestment proposals.
Click here to view PV table.
(a)
What is the cash payback period for this proposal? (Round answer to2 decimal places, e.g. 10.50.)
Cash payback period
years
(b)
What is the annual rate of return for the investment? (Round answerto 2 decimal places, e.g. 10.50.)
Annual rate of return for the investment
%
(c)
What is the net present value of the investment? (If the netpresent value is negative, use either a negative sign preceding thenumber eg -45 or parentheses eg (45). Round answer to 0 decimalplaces, e.g. 125. For calculation purposes, use 5 decimal places asdisplayed in the factor table provided.)
Net present value $
Exercise 26-11
Drake Corporation is reviewing an investment proposal. Theinitial cost and estimates of the book value of the investment atthe end of each year, the net cash flows for each year, and the netincome for each year are presented in the schedule below. All cashflows are assumed to take place at the end of the year. The salvagevalue of the investment at the end of each year is equal to itsbook value. There would be no salvage value at the end of theinvestmentâs life.
Investment Proposal
Year Initial Costand Book Value AnnualCash Flows Annual NetIncome
0 $105,700
1 69,800 $44,200 $8,300
2 43,000 40,400 13,600
3 21,100 35,000 13,100
4 7,000 29,000 14,900
5 0 26,000 19,000
Drake Corporation uses an 11% target rate of return for newinvestment proposals.
Click here to view PV table.
(a)
What is the cash payback period for this proposal? (Round answer to2 decimal places, e.g. 10.50.)
Cash payback period
years
(b)
What is the annual rate of return for the investment? (Round answerto 2 decimal places, e.g. 10.50.)
Annual rate of return for the investment
%
(c)
What is the net present value of the investment? (If the netpresent value is negative, use either a negative sign preceding thenumber eg -45 or parentheses eg (45). Round answer to 0 decimalplaces, e.g. 125. For calculation purposes, use 5 decimal places asdisplayed in the factor table provided.)
Net present value $
Related questions
Drake Corporation is reviewing an investment proposal. Theinitial cost and estimates of the book value of the investment atthe end of each year, the net cash flows for each year, and the netincome for each year are presented in the schedule below. All cashflows are assumed to take place at the end of the year. The salvagevalue of the investment at the end of each year is equal to itsbook value. There would be no salvage value at the end of theinvestmentâs life.
| Investment Proposal | ||||||||||
| Year | Initial Cost and Book Value | Annual Cash Flows | Annual Net Income | |||||||
| 0 | $105,000 | |||||||||
| 1 | 70,000 | $45,000 | $10,000 | |||||||
| 2 | 42,000 | 40,000 | 12,000 | |||||||
| 3 | 21,000 | 35,000 | 14,000 | |||||||
| 4 | 7,000 | 30,000 | 16,000 | |||||||
| 5 | 0 | 25,000 | 18,000 | |||||||
Drake Corporation uses an 11% target rate of return for newinvestment proposals.
What is the cash payback period for this proposal?____ years
What is the annual rate of return for the investment?____%
What is the net present value of the investment?$ _____
Drake Corporation is reviewing an investment proposal. Theinitial cost and estimates of the book value of the investment atthe end of each year, the net cash flows for each year, and the netincome for each year are presented in the schedule below. All cashflows are assumed to take place at the end of the year. The salvagevalue of the investment at the end of each year is equal to itsbook value. There would be no salvage value at the end of theinvestments live.
Invetsment Proposal
| year | inital Cost and Book value | annual Cash flows | Annual Net Income |
|---|---|---|---|
0 | $105,000 | ||
1 | 70,000 | $45,000 | $10,000 |
| 2 | 42,000 | 40,000 | 12,000 |
| 3 | 21,000 | 35,000 | 14,000 |
| 4 | 7,000 | 30,000 | 16,000 |
| 5 | 0 | 25,000 | 18,000 |
Drake Corporation uses an 11% target rate of return from the newinvestment proposals.
a. What is the cash payback period for this proposal?
b. What is the annual rate of return for the investment?
c. What is the net present value of the investment?
Drake Corporation is reviewing an investment proposal. Theinitial cost and estimates of the book value of the investment atthe end of each year, the net cash flows for each year, and the netincome for each year are presented in the schedule below. All cashflows are assumed to take place at the end of the year. The salvagevalue of the investment at the end of each year is equal to itsbook value. There would be no salvage value at the end of theinvestmentâs life.
| year | intial cost and book value | annual cash flow | annual net income |
| 0 | $104,700 | ||
| 1 | $71,000 | $44,600 | $10,900 |
| 2 | $41,100 | $39,500 | $9,600 |
| 3 | $21,300 | $35,500 | $15,700 |
| 4 | $8,500 | $29,400 | $16,600 |
| 5 | $0 | $25,600 | $17,100 |
Drake Corporation uses an 11% target rate of return for newinvestment proposals.
Click here to view PV table.
(a) What is the cash payback period for thisproposal? (Round answer to 2 decimal places, e.g.10.50.)
Cash payback period in years?
(b) What is the annual rate of return for theinvestment? (Round answer to 2 decimal places, e.g.10.50.)
Annual rate of return for the investment is?%
(c) What is the net present value of theinvestment? (If the net present value is negative, useeither a negative sign preceding the number eg -45 or parentheseseg (45).
Round answer to 0 decimal places, e.g. 125. For calculationpurposes, use 5 decimal places as displayed in the factor tableprovided.)
Net present value is $
