Problem: Morgan Company is considering a capital investment of $180,000 in additional productive facilities. The new machinery is exected to have a useful life of 6 years with no salvage value. Depreciation is by the straght-line method. During the life of the investment, annual net income and net annual ash flows ar expected to be $20,000ad $50,000 respctively. Morgan has a 15% cost of capital rate which is the required rate of return on the investment.
Instructions: (round to two decimals)
Q1. Compute (1) the cash payback period and (2) the annual rate of return of the proposed capital expenditure.
Q2. Using the discounted cash flow technique, compute the net present value.