Vilas Company is considering a capital investment of $198,900 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 $13,923 and $51,000, respectively. Vilas has a 12% cost of capital rate, which is the required rate of return on the investment. Click here to view the factor table. (a) Compute the cash payback period. (Round answer to 1 decimal place, e.g. 10.5.) Cash payback period Compute the annual rate of Annual rate of return (b) on the pro Net present value years capital % nditure. (Round an wer to 2 decimal places, e.g. 10.52%.) 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.)
Vilas Company is considering a capital investment of $198,900 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 $13,923 and $51,000, respectively. Vilas has a 12% cost of capital rate, which is the required rate of return on the investment. Click here to view the factor table. (a) Compute the cash payback period. (Round answer to 1 decimal place, e.g. 10.5.) Cash payback period Compute the annual rate of Annual rate of return (b) on the pro Net present value years capital % nditure. (Round an wer to 2 decimal places, e.g. 10.52%.) 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.)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Vilas Company is considering a capital investment of $198,900 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 $13,923 and $51,000, respectively. Vilas has a 12% cost of capital rate, which
is the required rate of return on the investment.
Click here to view the factor table.
(a)
Compute the cash payback period. (Round answer to 1 decimal place, e.g. 10.5.)
Cash payback period
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)
years
Net present value
%
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.)
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