Reference no: EM132490676

Calculate payback, annual rate of return, and net present value. Drake 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 ?ows for each year, and the net income for each year are presented in the schedule below. All cash ?ows 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.

Investment Proposal

                                   Initial Cost         Annual                 Annual Year

                             and Book Value           Cash Flows            Net 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                        0                             25,000                          18,000

Drake Corporation uses an 11% required rate of return for new investment proposals.

Instructions

Question (a) What is the cash payback period for this proposal?

Question (b) What is the annual rate of return for the investment?

Question (c) What is the net present value of the investment?