Armando Company is considering a capital investment of $144,100 in additional pr

ID: 2484467 • Letter: A

Question

Armando Company is considering a capital investment of $144,100 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 $16,750 and $45,010, respectively. Armando has a 12% cost of capital rate, which is the minimum acceptable rate of return on the investment

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

(b)

Item

Amount

Years

PV Factor

Present Value

Net annual cash flows

Capital investment

Net present value

$45010

1–5

3.60478

$162251))

(144100)

$ 18151))

(b)