Reviewing an investment proposal

Assignment Help Management Theories

Reference no: EM131134134

E12-11 MCA Corporation is reviewing an investment proposal. The initial cost and es- timates 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 in- vestment 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.

Investment Proposal

Year	Initial Cost and Book Value	Annual Cash Flows	Annual Net Income
0	$105,000
1	70,000	$50,000	$15,000
2	42,000	45,000	17,000
3	21,000	40,000	19,000
4	7,000	35,000	21,000
5	0	30,000	23,000

MCA Corporation uses a 15% 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?

Reference no: EM131134134

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