Question
Sarasota Company is considering a capital investment of $449,800 in additional productive facilities. The new machinery is expected to have a useful life of 5
Sarasota Company is considering a capital investment of $449,800 in additional productive facilities. The new machinery is expected to have a useful life of 5 years with no salvage value. Depreciation is computed by the straight-line method. During the life of the investment, annual net income and cash flows are expected to be $42,000 and $130,000, respectively. Sarasota has a 12% cost of capital rate, which is the minimum acceptable rate of return on the investment. Click here to view PV tables.
(a)
Compute the annual rate of return. (Round answer to 1 decimal place, e.g. 15.5.)
Annual rate of return | enter the annual rate of return in percentages rounded to 1 decimal place % |
Compute the cash payback period on the proposed capital expenditure. (Round answer to 2 decimal places, e.g. 15.25.)
Cash payback period | enter the cash payback period in years rounded to 2 decimal places years |
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