Question - Vegeta Company is considering a capital investment of $191,100 in additional productive facilities. The new machinery is expected to have a useful life of 5 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 $14,280 and $49,120, respectively. Vilas has a 12% cost of capital rate, which is the required rate of return on the investment.
Compute the cash payback period.
Compute the annual rate of return on the proposed capital expenditure.