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E12-11 BAP 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.

Year | Initial cost and Book value | Annual Cash flows | Annual Income |

0 | 105,000 | ||

1 | 70,000 | 45,000 | 10,000 |

2 | 42,000 | 40,000 | 12,000 |

3 | 21,000 | 35,000 | 14,000 |

4 | 7,000 | 30,000 | 16,000 |

5 | - | 25,000 | 18,000 |

Instructions

(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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