Calculation on the initial cost of investment

Assignment Help Accounting Basics

Reference no: EM13238989

CMW LTD is reviewing an investment proposal.The inital costs as well as ther estimnate of thde book value of the investment at the end of each year ,the net after-tax cash flows for each year and the net income for each year are presented in the following schedule.The salvage value of the investment at the end of each yaer 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 net after tax cash flows Annual net income
0 $105,000
1 $70,000 $50000 $15,000
2 $42000 $45000 $17000
3 $21000 $40,000 $19000
4. $7000 $35000 $21000
5. 0 $30,000 $23,000
Management uses 16 percent after tax target rate of return for new inverstment proposals
Requried:
(a)compute the following for the investment proposal:
(i)payback period.For this purpose only,assume that the cashb flows in year 1 to 5 occurs uniformly throughpout each year. (ii) accounting rate of return.Based you calcuation on thed inital cost of ther investment.

Reference no: EM13238989

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