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Armando Company 150000

Price: $1.99


Armando Company is considering a capital investment of $150,000 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 cash inflows are expected to be $18,000 and $48,000, respectively.
Armando has a 12% cost of capital rate, which is the minimum acceptable rate of return on
the investment.

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

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