E12-3

a.) Compute (1) the cash payback period and (2) the annual rate of return on the proposed capital expenditure.
Cash payback period = Cost of capital investment /Net annual cash inflow
= $180,000/$50,000
=3.6 years
Annual rate of return =Expected annual net income/ Average investment
=$20,000/ (($180,000+0)/2)
=22.22%
Using the discounted cash flow technique, compute the net present value.
b. Net Present Value
PV at 15 %
Discount factor for 6 periods $3.78
PV of Net annual cash flows
(50,000 x 3.78448) $189,224.00
Capital Investment $180,000.00
Net Present Value $9,224.00

E12-3
a.) Compute (1) the cash payback period and (2) the annual rate of return on the proposedcapital expenditure.
Cash payback period = Cost of capital investment /Net annual cash inflow
= $180,000/$50,000
=3.6 years
Annual rate of return =Expected annual net income/ Average investment
=$20,000/ (($180,000+0)/2)
=22.22%
B.) Using the discounted cash flow technique, compute the net present value.
b. Net Present Value
PV at 15 %
Discount factor for 6 periods $3.78
PV of Net annual cash flows
(50,000 x 3.78448) $189,224.00
Capital Investment $180,000.00
Net Present Value $9,224.00

E12-3
a.) Compute (1) the cash payback period and (2) the annual rate of return on the proposed capital expenditure.
Cash payback period = Cost of capital investment /Net annual cash inflow
= $180,000/$50,000
=3.6 years
Annual rate of return =Expected annual net income/ Average investment
=$20,000/ (($180,000+0)/2)
=22.22%

b.) Using the discounted cash flow technique, compute the net present value.
b. Net Present Value
PV at 15 %
Discount factor for 6 periods $3.78
PV of Net annual cash flows
(50,000 x 3.78448) $189,224.00
Capital Investment $180,000.00
Net Present Value $9,224.00