Question


x Your answer is incorrect. Try again. Drake Corporation is reviewing an investment proposal. The initial cost and estimates
(a) What is the cash payback period for this proposal? (Round answer to 2 decimal places, e.g. 10.50. Cash payback period yea
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Answer #1
Computation of Cash Payback Period
Cash Payback Period = 2+ 15100/36000
Cash Payback Period = 2.42 Years
Working
Year Cash Flow Cummulative Cash Flow
0 -$104,700 -$104,700
1 $44,600 -$60,100
2 $39,200 -$20,900
3 $36,000 $15,100
4 $30,800 $45,900
5 $24,200 $70,100
b)Computation of Annual Rate of Return
Annual Rate of Return for the investment = Average Net Income /Average Investment
Annual Rate of Return for the investment = 14020/52350= 26.78%
Working
Average Net Income = (9400+10700+16900+17900+15200)/5= $14020
Average Investment = (104700+0)/2= $52350
Year Cash Flow PV factor @ 11% Present Value of Cash Flow
[a] [b] [c = a*b]
0 -$104,700 1 -$104,700
1 $44,600 0.9009 $40,180
2 $39,200 0.81162 $31,816
3 $36,000 0.73119 $26,323
4 $30,800 0.65873 $20,289
5 $24,200 0.59345 $14,361
Total $28,269
Hence, NPV will be : $28269
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