Reference no: EM132431189

Questions -

Q1. Pierre's Hair Salon is considering opening a new location in French Lick, California. The cost of building a new salon is $297,000. A new salon will normally generate annual revenues of $63,245, with annual expenses (including depreciation) of $39,000. At the end of 15 years the salon will have a salvage value of $76,000.

Calculate the annual rate of return on the project.

Q2. Vilas Company is considering a capital investment of $190,400 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 $17,900 and $49,200, respectively. Vilas has a 12% cost of capital rate, which is the required rate of return on the investment.

(a) Compute the cash payback period.

Compute the annual rate of return on the proposed capital expenditure.

(b) Using the discounted cash flow technique, compute the net present value.