Vaughn Company is considering a capital investment of $378,400 in additional productive facilities. The new machinery is expected tohave a useful life of 6 years with no salvage value. Depreciation is by the straight-line method. During the life of the investment,annual net income and net annual cash flows are expected to be $18,920 and $86,000, respectively. Vaughn has an 7% cost of capitalrate, which is the required rate of return on the investment.(a1)Compute the cash payback period. (Round answer to 2 decimal places, e.g. 2.25.)Your answer is correct.Cash payback period(a2)eTextbook and Media(b)Your answer is correct.Annual rate of returnCompute the annual rate of return on the proposed capital expenditure. (Round answer to 2 decimal places, e.g. 2.25%.)eTextbook and Media4.4 yearsNet present value $10Attempts: 1 of 5 used%Attempts: 1 of 5 usedUsing the discounted cash flow technique, compute the net present value. (Round present value factor calculations to 5 decimalplaces, e.g. 1.25124 and the final answer to 2 decimal places e.g. 589.71.)

Net present value method : It is defined as the difference between the present value of cash inflows…

Answered: Using the discounted cash flow…

Using the discounted cash flow technique, compute the net present value. (Round present value factor calculations to places, e.g. 1.25124 and the final answer to 2 decimal places e.g. 589.71.)

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 10E: Roberts Company is considering an investment in equipment that is capable of producing more...

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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

Vaughn Company is considering a capital investment of $378,400 in additional productive facilities. The new machinery is expected to
have a useful life of 6 years with no salvage value. Depreciation is by the straight-line method. During the life of the investment,
annual net income and net annual cash flows are expected to be $18,920 and $86,000, respectively. Vaughn has an 7% cost of capital
rate, which is the required rate of return on the investment.
(a1)
Compute the cash payback period. (Round answer to 2 decimal places, e.g. 2.25.)
Your answer is correct.
Cash payback period
(a2)
eTextbook and Media
(b)
Your answer is correct.
Annual rate of return
Compute the annual rate of return on the proposed capital expenditure. (Round answer to 2 decimal places, e.g. 2.25%.)
eTextbook and Media
4.4 years
Net present value $
10
Attempts: 1 of 5 used
%
Attempts: 1 of 5 used
Using the discounted cash flow technique, compute the net present value. (Round present value factor calculations to 5 decimal
places, e.g. 1.25124 and the final answer to 2 decimal places e.g. 589.71.)

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