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E12-10 Vilas Company is considering a capital investment

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E12-10 Vilas Company is considering a capital investment of $190,000 in additional productive
facilities. The new machinery is expected to have a useful life of 5 years with no salvage
value. Depreciation is by the straight-line method. During the life of the investment, annual
net income and net annual cash flows are expected to be $12,000 and $50,000, respectively.
Vilas has a 12% cost of capital rate, which is the required rate of return on the investment.

Instructions
(a) Compute (1) the cash payback period and (2) the annual rate of return on the proposed
capital expenditure.
(b) Using the discounted cash fl ow technique, compute the net present value.

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