Question - Vilas Company is considering a capital investment of $191,400 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 $16,990 and $49,050, respectively. Vilas has a 12% cost of capital rate, which is the required rate of return on the investment. (Refer the below table)
Compute the cash payback period.
Compute the annual rate of return on the proposed capital expenditure.