Drake Corporation is reviewing an investment proposal. The initial cost is $106,200. 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 Annual Annual Year Book Value Cash Flows Net Income $69,500 $45.200 $8.500 2 41,700 39,400 11,600 20,800 36,000 15,100 6,400 29,000 14,600 25,630 19,230 Drake Corporation uses an 11% target rate of return for new investment proposals.
Drake Corporation is reviewing an investment proposal. The initial cost is $106,200. 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 Annual Annual Year Book Value Cash Flows Net Income $69,500 $45.200 $8.500 2 41,700 39,400 11,600 20,800 36,000 15,100 6,400 29,000 14,600 25,630 19,230 Drake Corporation uses an 11% target rate of return for new investment proposals.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Drake Corporation is reviewing an investment proposal. The initial cost is $106,200. 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
Annual
Annual
Year
Book Value
Cash Flows
Net Income
$69.500
$45.200
$8,500
2
41,700.
39,400
11,600
3.
20,800
36,000
15,100
4.
6,400
29,000
14,600
25,630
19,230
Drake Corporation uses an 11% target rate of return for new investment proposals.
Click here to view the factor table.
Transcribed Image Text:(a)
What is the cash payback period for this proposal? (Round answer to 2 decimal places, eg. 10.50.)
Cash payback period
years
(b)
What is the annual rate of return for the investment? (Round answer to 2 decimal places, eg. 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 eg. 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
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