Hawk, Inc. considering a capital investment of $200,000 in
Hawk, Inc. is considering a capital investment of $200,000 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 cash inflows are expected to be $18,000 and $58,000, respectively. Hawk has a 12% cost of capital rate, which is the minimum acceptable rate of return on the investment.
(Round to two decimals.)
(a)Compute (1) the annual rate of return and (2) the cash payback period on the proposed capital expenditure.
(b)Using the discounted cash flow technique, compute the net present value.
Cactus Industries recently purchased a new machine for its factory operations at a cost of $1,680,000. The investment is expected to generate $500,000 in annual cash flows for a period of five years. The required rate of return is 12%. The new machine is expected to have zero salvage value at the end of the five-year period.
Calculate the internal rate of return. (Table 2 from Appendix C is needed.)