Rondello Company is considering a capital investment of $150,000 in additional productive facilities. The new machinery is

Question:

Rondello Company is considering a capital investment of $150,000 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 cash inflows are expected to be $18,000 and $48,000, respectively. Rondello has a 12% cost of capital rate, which is the minimum acceptable rate of return on the investment.

Instructions

(Round to two decimals.)

(a) Compute

(1) The annual rate of return and

(2) The cash payback period on the proposed capital expenditure.

(b) Using the discounted cash flow technique, compute the net present value.

Net Present Value
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