Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Drake Corporation is reviewing an investment proposal. The initial cost and estimates of the book value of the investment at the end of each year,

Drake Corporation is reviewing an investment proposal. The initial cost and 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 equal to its book value. There would be no salvage value at the end of the investments life.

Investment ProposalYearInitial Cost

and Book Value

Annual

Cash FlowsAnnual

Net Income0$105,000170,000$45,000$10,000242,00040,00012,000321,00035,00014,00047,00030,00016,0005025,00018,000

Drake Corporation uses an 11% target rate of return for new investment proposals.

Click here to view PV table.

(a)

What is the cash payback period for this proposal?(Round answer to 2 decimal places, e.g. 10.50.)

Cash payback period

years

(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

%

(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 eg -45 or parentheses eg (45). Round answer to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Net present value$

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Survey Of Accounting

Authors: Carl S. Warren, Amanda Farmer, Jefferson P. Jones

10th Edition

0357900294, 9780357900291

More Books

Students also viewed these Accounting questions

Question

1. Why do we trust one type of information more than another?

Answered: 1 week ago