Practice Problem – 03 (Page: 1173)MCA Corporation is reviewing an investment proposal. The company's cost of capital is15%. The information regarding the proposal is given below.YearInitial InvestmentAnnual Cash InflowAnnual Net Income$105,0001$45,000$16,000240,00018,000335,00020,000430,00022,000525,00024,000Requirements:(a) What is the cash payback period for this proposal?(b) What is the annual rate of return for the investment? Should the company invest?(c) What is the net present value of the investment?Solution:3. (а)YearAmountBalanceInitial investment$(105.000)S(105.000)

cash pay back period is the period by which the initial investment is recovered. so it 2 years +…

Requirements: (a) What is the cash payback period for this proposal? (b) What is the annual rate of return for the investment? Should the company invest? (c) What is the net present value of the investment?

Requirements: (a) What is the cash payback period for this proposal? (b) What is the annual rate of return for the investment? Should the company invest? (c) What is the net present value of the investment?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter11: The Cost Of Capital

Section: Chapter Questions

Problem 19PROB

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Practice Problem – 03 (Page: 1173)
MCA Corporation is reviewing an investment proposal. The company's cost of capital is
15%. The information regarding the proposal is given below.
Year
Initial Investment
Annual Cash Inflow
Annual Net Income
$105,000
1
$45,000
$16,000
2
40,000
18,000
3
35,000
20,000
4
30,000
22,000
5
25,000
24,000
Requirements:
(a) What is the cash payback period for this proposal?
(b) What is the annual rate of return for the investment? Should the company invest?
(c) What is the net present value of the investment?
Solution:
3. (а)
Year
Amount
Balance
Initial investment
$(105.000)
S(105.000)

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