Kansas Corporation is reviewing an investment proposal that has an initial cost of $54,000. An estimate of the investment's end-of- year book value, the yearly after-tax net cash inflows, and the yearly net income are presented in the schedule below. Yearly after-tax net cash inflows include savings from the depreciation tax shield. The investment's salvage value at the end of each year is equal to book value, and there will be no salvage value at the end of the investment's life. $35,500 Yearly After-Tax Net cash Inflows Initial Cost and Year 1 Book Value $20,500 2 21,500 18,000 3 11,000 15,500 4 4,000 13,000 5 0 10,500 $77,500 Yearly Net Income $ 3,000 4,000 5,000 6,000 7,000 $25,000 Kansas uses a 12% after-tax target rate of return for new investment proposals. FV of $1 at FV of an ordinary PV of $1 at PV of an ordinary 1123456 Year - 12% annuity at 12% 12% annuity at 12% 1.120 1.000 0.893 0.893 1.254 2.120 0.797 1.690 1.405 3.374 0.712 2.402 1.574 4.779 0.636 3.037 1.762 6.353 0.567 3.605 1.974 8.115 0.507 4.111 Required: A. Calculate the project's payback period. (Do not round intermediate calculations.) B. Calculate the accounting rate of return on the initial investment. (Do not round intermediate calculations. Round your answer to 1 decimal place.) C. Calculate the proposal's net present value. (Do not round intermediate calculations. Round your final answer to nearest dollar amount.) A. Project's payback period years B. Rate of return % C. Net present value
Kansas Corporation is reviewing an investment proposal that has an initial cost of $54,000. An estimate of the investment's end-of- year book value, the yearly after-tax net cash inflows, and the yearly net income are presented in the schedule below. Yearly after-tax net cash inflows include savings from the depreciation tax shield. The investment's salvage value at the end of each year is equal to book value, and there will be no salvage value at the end of the investment's life. $35,500 Yearly After-Tax Net cash Inflows Initial Cost and Year 1 Book Value $20,500 2 21,500 18,000 3 11,000 15,500 4 4,000 13,000 5 0 10,500 $77,500 Yearly Net Income $ 3,000 4,000 5,000 6,000 7,000 $25,000 Kansas uses a 12% after-tax target rate of return for new investment proposals. FV of $1 at FV of an ordinary PV of $1 at PV of an ordinary 1123456 Year - 12% annuity at 12% 12% annuity at 12% 1.120 1.000 0.893 0.893 1.254 2.120 0.797 1.690 1.405 3.374 0.712 2.402 1.574 4.779 0.636 3.037 1.762 6.353 0.567 3.605 1.974 8.115 0.507 4.111 Required: A. Calculate the project's payback period. (Do not round intermediate calculations.) B. Calculate the accounting rate of return on the initial investment. (Do not round intermediate calculations. Round your answer to 1 decimal place.) C. Calculate the proposal's net present value. (Do not round intermediate calculations. Round your final answer to nearest dollar amount.) A. Project's payback period years B. Rate of return % C. Net present value
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Kansas Corporation is reviewing an investment proposal that has an initial cost of $54,000. An estimate of the investment's end-of-
year book value, the yearly after-tax net cash inflows, and the yearly net income are presented in the schedule below. Yearly after-tax
net cash inflows include savings from the depreciation tax shield. The investment's salvage value at the end of each year is equal to
book value, and there will be no salvage value at the end of the investment's life.
$35,500
Yearly After-Tax Net
cash Inflows
Initial Cost and
Year
1
Book Value
$20,500
2
21,500
18,000
3
11,000
15,500
4
4,000
13,000
5
0
10,500
$77,500
Yearly Net
Income
$ 3,000
4,000
5,000
6,000
7,000
$25,000
Kansas uses a 12% after-tax target rate of return for new investment proposals.
FV of $1 at
FV of an ordinary
PV of $1 at
PV of an ordinary
1123456
Year
- 12%
annuity at 12%
12%
annuity at 12%
1.120
1.000
0.893
0.893
1.254
2.120
0.797
1.690
1.405
3.374
0.712
2.402
1.574
4.779
0.636
3.037
1.762
6.353
0.567
3.605
1.974
8.115
0.507
4.111
Required:
A. Calculate the project's payback period. (Do not round intermediate calculations.)
B. Calculate the accounting rate of return on the initial investment. (Do not round intermediate calculations. Round your answer to 1
decimal place.)
C. Calculate the proposal's net present value. (Do not round intermediate calculations. Round your final answer to nearest dollar
amount.)
A.
Project's payback period
years
B.
Rate of return
%
C.
Net present value
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