Question

Question 6 -2 View Policies Current Attempt in Progress Vilas Company is considering a capital investment of $190,300 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 $15,000 and $49,300, respectively. Vilas has a 12% cost of capital rate, which is the required rate of return on the investment. Click here to view PV table. (a) Compute the cash payback period. (Round answer to 2 decimal places, e.g. 10.50.) Cash payback period years Compute the annual rate of return on the proposed capital expenditure. (Round answer to 2 decimal places, e.g. 10.50.) Annual rate of return (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.s. (45). Round answer for present value to O decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value Attempts: 0 of 7 used Save for Later Submit Answer

Answer 1

Cash Payback Period = Original Investment / Annual Cash Inflow

Therefore Cash Payback Period = 190300/ 49300 = 3.86

Therefore Cash Flow in 3 years = 49300*3 = 147900

Payback remaining for 4th year = 190300-147900 = 42400

Now, Cash Inflow per month (Assuming that Cash flow per annum is constant) = 49300/12 = 4108.333

Therefore Months requires for Cash flow of remaining 42400 = 42400/4108.333 = 10.32 i.e 11 Months

Therefore Total Cash Payback period = 3 years 11 Months

B)

Annual Rate of Return = Net Income per year / Investment made = 15000/190300*100 = 7.88%

C)

Calculation of Net Present Value

NPV = PV of Cash Inflow - PV of Cash Outflow

Year	Cash Flow	DF @ 12%	Present Value
1	49300	0.89286	44017.86
2	49300	0.79719	39301.66
3	49300	0.71178	35090.77
4	49300	0.63552	31331.04
5	49300	0.56743	27974.14
Total			177715.5
Initial Investment			190300
NPV			-12584.53