Vaughn Company is considering a capital investment of $378,400 in additional productive facilities. The new machinery is expected tohave a useful life of 6 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 $18,920 and $86,000, respectively. Vaughn has an 7% cost of capitalrate, which is the required rate of return on the investment.(a1)Your answer is correct.Compute the cash payback period. (Round answer to 2 decimal places, e.g. 2.25.)Cash payback periodeTextbook and Media(a2)4.4Annual rate of returnyearsCompute the annual rate of return on the proposed capital expenditure. (Round answer to 2 decimal places, e.g. 2.25%.)Attempts: 1 of 5 used%

Accounting rate of return (ARR) is a capital budgeting formula that is used to determine the…

Answered: (a2) Compute the annual rate of return…

(a2) Compute the annual rate of return on the proposed capital expenditure. (Round answer to 2 decimal places, e.g. 2.25%.) Annual rate of return %

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Vaughn Company is considering a capital investment of $378,400 in additional productive facilities. The new machinery is expected to
have a useful life of 6 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 $18,920 and $86,000, respectively. Vaughn has an 7% cost of capital
rate, which is the required rate of return on the investment.
(a1)
Your answer is correct.
Compute the cash payback period. (Round answer to 2 decimal places, e.g. 2.25.)
Cash payback period
eTextbook and Media
(a2)
4.4
Annual rate of return
years
Compute the annual rate of return on the proposed capital expenditure. (Round answer to 2 decimal places, e.g. 2.25%.)
Attempts: 1 of 5 used
%

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