amble Company is considering a capital investment of $203,500 in additional productive facilities. The new machinery is expected to have a useful life of 5 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 $15,873 and $55,000, respectively. Bramble has a 12% cost of capital rate, which is the required rate of return on the investment. (a) Compute the cash payback period. (Round answer to 1 decimal place, e.g. 10.5.) Cash payback period years Compute the annual rate of return on the proposed capital expenditure. (Round answer to 2 decimal places, e.g. 10.52%.) Annual rate of return % (b) Using the discounted cash flow technique, compute the net present value. (If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round answer for present value to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Bramble Company is considering a capital investment of $203,500 in additional productive facilities. The new machinery is expected to have a useful life of 5 years with no salvage value.
(a)
Compute the cash payback period. (Round answer to 1 decimal place, e.g. 10.5.)
| Cash payback period | years |
Compute the annual rate of return on the proposed capital expenditure. (Round answer to 2 decimal places, e.g. 10.52%.)
| Annual rate of return | % |
(b)
Using the discounted cash flow technique, compute the
| Net present value |
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