Cullumber Corporation is reviewing an investment proposal. The initial cost is $103,700. 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 following schedule. 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 assumed to equal its book value. There would be no salvage value at the end of the investment's life. Investment Proposal Annual Year Book Value Cash Flows Annual Net Income 1 $70,500 $45,200 $12,000 2 43,000 40,500 13,000 3 21,900 36,000 14,900 4 7,400 30,400 15,900 5 0 24,190 16,790 Cullumber Corporation uses an 11% target rate of return for new investment proposals. Click here to view PV table. (a) What is the cash payback period for this proposal? (Round answer to 2 decimal places, e.g. 10.50.) Cash payback period years (b) What is the annual rate of return for the investment? (Round answer to 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 net present value is negative, use either a negative sign preceding the number e.g.-45 or parentheses eg (45). Round answer to O decimal places, eg. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value $ -52681.25
Cullumber Corporation is reviewing an investment proposal. The initial cost is $103,700. 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 following schedule. 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 assumed to equal its book value. There would be no salvage value at the end of the investment's life. Investment Proposal Annual Year Book Value Cash Flows Annual Net Income 1 $70,500 $45,200 $12,000 2 43,000 40,500 13,000 3 21,900 36,000 14,900 4 7,400 30,400 15,900 5 0 24,190 16,790 Cullumber Corporation uses an 11% target rate of return for new investment proposals. Click here to view PV table. (a) What is the cash payback period for this proposal? (Round answer to 2 decimal places, e.g. 10.50.) Cash payback period years (b) What is the annual rate of return for the investment? (Round answer to 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 net present value is negative, use either a negative sign preceding the number e.g.-45 or parentheses eg (45). Round answer to O decimal places, eg. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value $ -52681.25
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Cullumber Corporation is reviewing an investment proposal. The initial cost is $103,700. 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 following
schedule. 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
assumed to equal its book value. There would be no salvage value at the end of the investment's life.
Investment Proposal
Annual
Year
Book Value
Cash Flows
Annual
Net Income
1
$70,500
$45,200
$12,000
2
43,000
40,500
13,000
3
21,900
36,000
14,900
4
7,400
30,400
15,900
5
0
24,190
16,790
Cullumber Corporation uses an 11% target rate of return for new investment proposals.
Click here to view PV table.
(a)
What is the cash payback period for this proposal? (Round answer to 2 decimal places, e.g. 10.50.)
Cash payback period
years
(b)
What is the annual rate of return for the investment? (Round answer to 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 net present value is negative, use either a negative sign preceding the number e.g.-45
or parentheses eg (45). Round answer to O decimal places, eg. 125. For calculation purposes, use 5 decimal places as displayed in the factor
table provided.)
Net present value
$
-52681.25
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