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 investment's life. 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 $ When using Table 3 , the future value is multiplied by the present value factor specified at the intersection of the number of periods and the discount rate. the $826.45($1,000.82645) computed previously. The following two demonstration problems (Illustrations G-12 and G-13) illustrate how to use Table 3. Present value of a series of future amounts computation value of 1 to be received periodically for a given number of payments. It assumes that each payment is made at the end of each period. TABLE 4 Present Value of an Annuity of 1 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 investment's life. 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 $ When using Table 3 , the future value is multiplied by the present value factor specified at the intersection of the number of periods and the discount rate. the $826.45($1,000.82645) computed previously. The following two demonstration problems (Illustrations G-12 and G-13) illustrate how to use Table 3. Present value of a series of future amounts computation value of 1 to be received periodically for a given number of payments. It assumes that each payment is made at the end of each period. TABLE 4 Present Value of an Annuity of 1
