Refer back to E26-10 to address the following. Instructions Prepare a memo to Maria Fierro, your supervisor.

Question:

Refer back to E26-10 to address the following.

Instructions

Prepare a memo to Maria Fierro, your supervisor. Show your calculations from E26-10 (a) and (b). In one or two paragraphs, discuss important nonfinancial considerations. Make any assumptions you believe to be necessary. Make a recommendation based on your analysis.

E26-10

Vilas Company is considering a capital investment of $190,000 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 net annual cash flows are expected to be $12,000 and $50,000, respectively. Vilas has a 12% cost of capital rate, which is the required rate of return on the investment.

Instructions

(Round to two decimals.)

(a) Compute (1) the cash payback period and (2) the annual rate of return on the proposed capital expenditure.

(b) Using the discounted cash fl ow technique, compute the net present value.

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...

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