# Managerial Accounting: E12-10 Vilas Company is considering a capital investment

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Managerial Accounting

E12-10

Vilas Company is considering a capital investment of $190,500 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 $12,920 and $49,900, respectively. Vilas has a 12% cost of capital rate, which is the required rate of return on the investment.

(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Instructions:

(a) Compute (1) the cash payback period and (2) the annual rate of return on the proposed capital expenditure. (Round answer to 1 decimal place, e.g. 20.5.)

(b) Using the discounted cash flow technique, compute the net present value. (If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round answer for present value to 0 decimal places, e.g. 125.)

Managerial Accounting

E12-10

Vilas Company is considering a capital investment of $190,500 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 $12,920 and $49,900, respectively. Vilas has a 12% cost of capital rate, which is the required rate of return on the investment.

(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Instructions:

(a) Compute (1) the cash payback period and (2) the annual rate of return on the proposed capital expenditure. (Round answer to 1 decimal place, e.g. 20.5.)

(b) Using the discounted cash flow technique, compute the net present value. (If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round answer for present value to 0 decimal places, e.g. 125.)

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