Questian 1 Secure https Question 1 Your answer is partially

Questian 1 Secure | https Question 1 Your answer is partially correct. Try again Drake 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 Investment Proposal Initial Cost and Book Annual Cash Flows Annual Net Income Year Value $104,500 69,300 42,100 21,100 7,700 0 $45,900 40,300 35,000 30,800 25,600 $10,700 13,100 14,000 17,400 17,900 4 Drake Corporation uses an 11% target rate of return for new investment proposals Click here to view PV table What is the cash payback period for this proposal? (Round answer to 2 decimal places, e.g. 10.50.) Cash payback period 52 years What is the annual rate of return for the investment? (Round answer to 2 decimal places, e.g. 10.50.) Annual rate of return for the investment 8.65 What is the net present value of the investment? (If the net present value is negative, use either a negative sign preceding the number eg-45 or parentheses eg (45). Round answer to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value $3063

Solution

Annual rate of Return For Investment : Year Annual Net Incone 1 $     10,700 2 $     13,100 3 $     14,000 4 $     17,400 5 $     17,900 Total $     73,100 Average Annual Net Income for five years = $73,100/5 = $     14,620 Initial Investment = $ 1,04,500 Annual Rate of Return = [ $14,620/($1,04,500/2)] 27.98% Therefore Annual Rate of Investment = 27.98%