Question
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
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 and cash inflows are expected to be $25,000 and $80,000, respectively. Mimi's minimum required rate of return is 10%. The present value of 1 for 5 periods at 10% is .621 and the present value of an annuity of 1 for 5 periods at 10% is 3.791.
Compute each of the following:
a. Cash payback period
b. Net present value
c. Annual rate of return
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