Question - Cesar Company is considering a capital investment of $181,600 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 $19,810 and $49,570 respectively. Cesar has a 15% cost of capital rate which is the required rate of return on the investment.
Compute (1) the cash payback period and (2) the annual rate of return on the proposed capital expenditure.
Using the discounted cash flow technique, compute the net present value.