Sapporo Enterprises is reviewing an investment proposal. The initial cost and estimates of the book value of the investment at the end of each year, the net cash flows for each year, and the net income for each year are presented in the schedule below. All cash flows are assumed to take place at the end of the year. The residual value of the investment at the end of each year is equal to its book value. There would be no residual value at the end of the investment’s life.

Sapporo uses an 11% target rate of return for new investment proposals.

Instructions

a. What is the cash payback period for this proposal?

b. What is the annual rate of return for the investment?

c. What is the net present value of the investment?

Transcribed Image Text:

Investment Proposal Initial Cost Annual Annual Cash Flows Net Income Year and Book Value ¥105,000,000 70,000,000 1 ¥45,000,000 ¥10,000,000 42,000,000 40,000,000 12,000,000 21,000,000 3 35,000,000 14,000,000 7,000,000 30,000,000 16,000,000 25,000,000 5 18,000,000