Acc301 Essentials of Accounting: E10-8 Morgan Company is considering a capital investment

Acc301 Essentials of Accounting

E10-8
Morgan Company is considering a capital investment of $180,000 in additional productive facilities. The new machinery is expected to have a useful life of 6 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 $20,000 and $50,000 respectively. Morgan has a 15% cost of capital rate which is the required rate of return on the investment.

Instructions:
(a) Compute (1) the cash payback period and (2) the annual rate of return on the proposed capital expenditure. (Round to two decimals.)
(b) Using the discounted cash flow technique, compute the net present value. (Round to two decimals.)
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