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Year 1 2 3 4 5 Investment Proposal Book Value $69,900 41,000 21,000 7,600 0 Annual Cash Flows $46,000 40,600 36,000 31,000 24,220 Annual Net Income $11,300 11,700 16,000 17,600 16,620 Drake Corporation uses an 11% target rate of return for new investment proposals.

Year 1 2 3 4 5 Investment Proposal Book Value $69,900 41,000 21,000 7,600 0 Annual Cash Flows $46,000 40,600 36,000 31,000 24,220 Annual Net Income $11,300 11,700 16,000 17,600 16,620 Drake Corporation uses an 11% target rate of return for new investment proposals.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Current Attempt in Progress Drake Corporation is reviewing an investment proposal. The initial cost is $104,600. 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. Year 1 2 3 4 5 Investment Proposal Annual Cash Flows Book Value $69.900 41,000 21,000 7,600 0 $46,000 40,600 36,000 31,000 24,220 Annual Net Income $11,300 11,700 16,000 17,600 16,620 Drake Corporation uses an 11% target rate of return for new investment proposals.
Transcribed Image Text:Current Attempt in Progress Drake Corporation is reviewing an investment proposal. The initial cost is $104,600. 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. Year 1 2 3 4 5 Investment Proposal Annual Cash Flows Book Value $69.900 41,000 21,000 7,600 0 $46,000 40,600 36,000 31,000 24,220 Annual Net Income $11,300 11,700 16,000 17,600 16,620 Drake Corporation uses an 11% target rate of return for new investment proposals.
(a) What is the cash payback period for this proposal? (Round answer to 2 decimal places, e.g. 10.50.) Cash payback period (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 years Net present value $ % (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 e.g. -45 or parentheses eg (45). Round answer to 0 decimal places, eg. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Transcribed Image Text:(a) What is the cash payback period for this proposal? (Round answer to 2 decimal places, e.g. 10.50.) Cash payback period (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 years Net present value $ % (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 e.g. -45 or parentheses eg (45). Round answer to 0 decimal places, eg. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
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