Supply the missing data for each of the following proposals: Proposal A Proposal

Question

Supply the missing data for each of the following proposals:

                                        Proposal A        Proposal B      Proposal C

Initial investment                     a                   62,900            226,000

Annual net cash inflow       60,000                   c                     e   

Life in Years                           10                      6                    10

Salvage Years                         0                   10,000                0

Payback Period in year            b                       d                     5.65

Internal Rate of Return            12%               24%                    f                   

Explanation / Answer

a.

b.

Payback period = $339,000/$60,000 = 5.65 years

c.

Annual cash inflow = $60,150/3.020 = $19,917.22

d.

Payback = $62,900/$19,917.22 = 3.158

e.

Annual net cash inflow = $226,000/5.650 = $40,000

f.

Present value factor for 10 years = $226,000/$40,000 = 5.650

Look up value 5.650 in Present value of annuity table under 10 years and the internal rate of return is 12%.

Annual Cash inflow $60,000 Present value Factor for 10 years 5.65 Initial investment(60,000 x 5.65) $339,000

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