Drake Corporation is reviewing an investment proposal. The initial cost is $105,100. 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 assumed to equal its book value. There would be no salvage value at the end of the investment’s life. Investment Proposal Year Book Value Annual Cash Flows Annual Net Income 1 $69,600 $44,000 $8,500 2 41,900 39,500 11,800 3 21,600 36,000 15,700 4 8,300 31,000 17,700 5 0 22,915 14,615 Drake Corporation uses an 11% target rate of return for new investment proposals. Click here to view the factor 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 %
Drake Corporation is reviewing an investment proposal. The initial cost is $105,100. 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 assumed to equal its book value. There would be no salvage value at the end of the investment’s life. Investment Proposal Year Book Value Annual Cash Flows Annual Net Income 1 $69,600 $44,000 $8,500 2 41,900 39,500 11,800 3 21,600 36,000 15,700 4 8,300 31,000 17,700 5 0 22,915 14,615 Drake Corporation uses an 11% target rate of return for new investment proposals. Click here to view the factor 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 %
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Drake Corporation is reviewing an investment proposal. The initial cost is $105,100. 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 assumed to equal its book value. There would be no salvage value at the end of the investment’s life.
| Investment Proposal | ||||||||||
| Year | Book Value | Annual Cash Flows |
Annual Net Income |
|||||||
| 1 | $69,600 | $44,000 | $8,500 | |||||||
| 2 | 41,900 | 39,500 | 11,800 | |||||||
| 3 | 21,600 | 36,000 | 15,700 | |||||||
| 4 | 8,300 | 31,000 | 17,700 | |||||||
| 5 | 0 | 22,915 | 14,615 |
Drake Corporation uses an 11% target rate of
Click here to view the factor 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 | % |
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