Rondello Company is considering a capital investment of $152,200 in additional p

Question

Rondello Company is considering a capital investment of $152,200 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 cash inflows are expected to be $16,570 and $45,900, respectively. Rondello has a 12% cost of capital rate, which is the minimum acceptable rate of return on the investment. (Round answers to 0 decimals places, e.g. 2,410 except round payback to 2 decimal places, e.g. 5.25.)

Compute the following:

Annual rate of return %?????

Cash payback period on the proposed capital expenditure ??? years

Using the discounted cash flow technique, compute the net present value $

Explanation / Answer

Annual rate of return = 16,570/152,200/2 = 22%

Payback period = 152,200/45,900 = 3.32 years

cash flow

PV factor

present value

-152200

1.762342

-268228

45900

1.573519

72224.54

45900

1.404928

64486.2

45900

1.2544

57576.96

45900

1.12

51408

45900

1

45900

23367.29

Net Present value = 23367

cash flow

PV factor

present value

-152200

1.762342

-268228

45900

1.573519

72224.54

45900

1.404928

64486.2

45900

1.2544

57576.96

45900

1.12

51408

45900

1

45900

23367.29

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