BAP Corporation is reviewing an investment proposal. The initial cost and estima
ID: 2489486 • Letter: B
Question
BAP Corporation is reviewing an investment proposal. The initial cost and estimates of the book value of the investment at the end of each year, the net cash flows for each year, and the net income for each year are presented in the schedule below. All cash flows are assumed to take place at the end of the year. The salvage value of the investment at the end of each year is equal to its book value. There would be no salvage value at the end of the investment's life. BAP Corporation uses a 12% target rate of return for new investment proposals. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) What is the cash payback period for this proposal? (Round answer to 2 decimal places, e.g. 10.50.) What is the annual rate of return for the investment? (Round answer to 2 decimal places, e.g. 10.50.) What is the net present value of the investment? (Round answer to 0 decimal places, e.g. 125.)Explanation / Answer
Cash Payback Period = 2.58
First Two years cash flow is equal to $85000 and remaing cash flow is received in the third year. so we divide the remaining cash flow from initial investment by Total cash flow which is 0.58 hence the Payback period is 2.58
Average Income -$13702
Average Investment=$52545
Average Rate of Return= $13702/$52545
=26.08%
Net Present Value will be
-$105090*1 =($105090)
45900*0.8929= $40984.11
39100*0.7972= $31170.52
34600*0.7118= $24628.28
29400*0.6355= $18683.70
24600*0.5674= $13958.04
Net Present Value =$24334.65
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