Question

CALCULATOR FULL SCREEN PRINTER VERSION BACK NEXT Drake 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 book value. There would be no salvage value at the end of the investment's life Annual Net Income 0 Investment Proposal Initial Cost Annual and Book Cash Flows Value $105,900 69,300 $45,700 41,600 40,400 21,300 35,800 8.200 31,000 25,300 $9,100 12,700 15,500 17,900 17.100 Drake Corporation uses an 11% target rate of return for new investment proposals Click here to view.ptable What is the cash payback period for this proposal (Round answer Cash payback period years What is the annual rate of return for the investment (Round answer to 2 decimal places, eg. 10.10.) Pa I 2000-2018 Inc. A s Reserved. A Dife Wien MacBook Pro 10 PPP

Answer 1

B2 X fx year A B C Ε H year annual cash flows present value factor @ 11% cumulative cash flow annual net income -$ 105,900 $ 45,700 $ 40,400 $ 35,800 $ 31,000 $ 25,300 total = 1.00000 0.90090 0.81162 0.73119 0.65873 0.59345 present value of annual cash flows $ 105,900.00 $41,171.13 $ 32,789.45 $ 26,176.60 $ 20,420.63 $ 15,014.29 $ 29,672 -$ 105,900 $ 60,200 $ 19,800 $ 16,000 $ 47,000 $ 72,300 $ 9,100 $ 12,700 $ 15,500 $ 17,900 $ 17,100 $ 72,300 5 cash payback period = 2 +($19,800 / $35,800) cash payback period = 2.55 years average investment = $105,900 / 2 = $ 52,950 average net income = $72,300 / 5 = $ 14,460 annual rate of return = average net income / average investment annual rate of return = $14,460 / $52,950 annual rate of return = 27.31% To n net present value = et pr $ 29,672

for formulas and calculations, refer to the image below -

X fx year А year annual cash flows present value factor @ 11% present value of annual cash flows cumulative cash flow annual net income 0 1 2 -105900 45700 40400 35800 31000 25300 =ROUND(-PV(11%,B3,0,1),5) =C3*D3 =ROUND(-PV(11%,B4,0,1),5) =C4*D4 =ROUND(-PV(11%,B5,0,1),5) =C5*D5 =ROUND(-PV(11%,B6,0,1),5) =C6*D6 =ROUND(-PV(11%,B7,0,1),5) =C7*D7 =ROUND(-PV(11%,B8,0,1),5) =C8*D8 total = =ROUND(SUM(E3:E8),0) =C3 =F3+04 =F4+C5 =F5+C6 =F6+C7 =F7+C8 3 9100 12700 15500 17900 17100 =SUM(G4:58) 5 cash payback period = 2 +($19,800 / $35,800) cash payback period = =2+(19800/35800) years average investment = $105,900 / 2 = =105900/2 average net income = $72,300 / 5 = =72300/5 annual rate of return = average net income / average investment annual rate of return = $14,460 / $52,950 annual rate of return = =ROUND(F15/F14,4) (c) net present value = =E9

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