Mimi Company is considering a capital investment of $275,000 in new equipment. The equipment is expected to have a 5-year useful life with no salvage value. Depreciation is computed by the straight-line method. During the life of the investment, annual net income is expected to be $25,000. Mimi's cost of capital is 10%. Compute the net present value for Mimi Company's Capital Investment:

Annual Net cash flow:

Annual net income $25000 + Annual depreciation $55000 ($275,000 / 5 years) = $80,000

Annual Rate of Return:

Annual net income $25000 / Average investment $137500 * 100 = 18.18%

Cash Payback Period:

Initial Investment $275,000 / Annual Net Cash Flow $80000 yr = 3.44 years