Question
Sandhill Company is considering a capital investment of $189,000 in additional productive facilities. The new machinery is expected to have a useful life of 5
Sandhill Company is considering a capital investment of $189,000 in additional productive facilities. The new machinery is expected to have a useful life of 5 years with no salvage value. Depreciation is by the straight-line method. During the life of the investment, annual net income and net annual cash flows are expected to be $11,529 and $54,000, respectively. Sandhill has a 12% cost of capital rate, which is the required rate of return on the investment. Click here to view the factor table. (a) Compute the cash payback period. (Round answer to 1 decimal place, e.g. 10.5.)
Cash payback period | enter the cash payback period in years rounded to 1 decimal place years |
Compute the annual rate of return on the proposed capital expenditure. (Round answer to 2 decimal places, e.g. 10.52%.)
Annual rate of return | enter the annual rate of return in percentages rounded to 2 decimal places % |
(b) Using the discounted cash flow technique, compute the net present value. (If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round answer for present value to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Net present value | enter the net present value in dollars rounded to 0 decimal places |
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