Wade Corporation is reviewing an investment proposal. The initial cost is $105,000. 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. Year 1 2 3 4 5 Investment Proposal Annual Cash Flows Book Value $70,000 42,000 21,000 7,000 $45,000 40,000 35,000 30,000 25,000 Annual Net Income $16,000 18,000 20,000 22,000 24,000 Wade Corporation uses a 15% target rate of return for new investment proposals. a. What is the cash payback period for this proposal? b. What is the annual rate of return for the investment? c. What is the net present value of the investment?
Wade Corporation is reviewing an investment proposal. The initial cost is $105,000. 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. Year 1 2 3 4 5 Investment Proposal Annual Cash Flows Book Value $70,000 42,000 21,000 7,000 $45,000 40,000 35,000 30,000 25,000 Annual Net Income $16,000 18,000 20,000 22,000 24,000 Wade Corporation uses a 15% target rate of return for new investment proposals. a. What is the cash payback period for this proposal? b. What is the annual rate of return for the investment? c. What is the net present value of the investment?
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 6CE
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![Wade Corporation is reviewing an investment proposal. The initial cost is $105,000. 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.
Year
1
2
3
4
5
Investment Proposal
Annual
Book Value Cash Flows
$70,000
42,000
21,000
7,000
0
$45,000
40,000
35,000
30,000
25,000
Annual
Net Income
$16,000
18,000
20,000
22,000
24,000
Wade Corporation uses a 15% target rate of return for new investment proposals.
a. What is the cash payback period for this proposal?
b. What is the annual rate of return for the investment?
c. What is the net present value of the investment?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4a204987-41c1-4ca4-a7f0-270fd6cfa0af%2Fefd58037-cebf-4771-85b9-cc88e0bb4527%2Fw7ewdum_processed.png&w=3840&q=75)
Transcribed Image Text:Wade Corporation is reviewing an investment proposal. The initial cost is $105,000. 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.
Year
1
2
3
4
5
Investment Proposal
Annual
Book Value Cash Flows
$70,000
42,000
21,000
7,000
0
$45,000
40,000
35,000
30,000
25,000
Annual
Net Income
$16,000
18,000
20,000
22,000
24,000
Wade Corporation uses a 15% target rate of return for new investment proposals.
a. What is the cash payback period for this proposal?
b. What is the annual rate of return for the investment?
c. What is the net present value of the investment?
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