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 Proposal
Year Initial Cost and Book Value Annual Cash Flows Annual Net Income
0 $104,700
1 71,000 $44,600 $10,900
2 41,100 39,500 9,600
3 21,300 35,500 15,700
4 8,500 29,400 16,600
5 0 25,600 17,100

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.)

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

Corporate Financial Accounting

Authors: Carl S Warren, Jeff Jones

16th Edition

0357510380, 978-0357510384

More Books

Students also viewed these Accounting questions

Question

Context, i.e. the context of the information presented and received

Answered: 1 week ago