Rondello Company is considering a capital investment of $150,000 in additional p

Question

Rondello Company is considering a capital investment of $150,000 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 cash inflows are expected to be $18,000 and $48,000, respectively. Rondello has a 12% cost of capital rate, which is the minimum acceptable rate of return on the investment. (Round payback to 2 decimal places, e.g. 10.50. Round other answers to O decimals places, e.g. 125.) Compute the following:

Explanation / Answer

Years Cumuative CF 0 -150000 -150000 1 48000 -102000 2 48000 -54000 3 48000 -6000 4 48000 42000 5 48000 payback 3.125 YEARS Present Value of CF $ 173,029.26 NPV(12%,B2:B6) PV of In Investment -150000 NPV $ 23,029.26

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