This Website Has Been Moved to a New Link


Loading

E12-11 BAP Corporation is reviewing an investment proposal

Price: $1.99


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
 


BAP Corporation uses a 12% target rate of return for new investment proposals.

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?

No comments:

Post a Comment