Homework Sourseshift SolutionSolution a Cash payback period 2 years 10410
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Solution
Solution a:
Cash payback period = 2 years + ($104,100 - $84,000) / $34,600 = 2.58 years
Solution 2:
Annual rate of return = Average annual income / Average investment
Average investment = (Initial investment + salvage value) / 2 = ($104,100 + 0) / 2 = $52,050
Average annual income = ($9,600 + $12,900 + $12,500 + $18,600 + $15,900) / 5 = $13,900
Annual rate of return = $13,900 / $52,050 = 26.71%
| Computation of cumulative cash flows | ||
| Year | Cash Flows | Cumulative cash flows |
| 1 | $44,300.00 | $44,300.00 |
| 2 | $39,700.00 | $84,000.00 |
| 3 | $34,600.00 | $118,600.00 |
| 4 | $30,300.00 | $148,900.00 |
| 5 | $24,700.00 | $173,600.00 |
