3.Kansas Corporation is reviewing an investment proposal that has an initial cost of $70,500. Anestimate of the investment's end-of-year book value, the yearly after-tax net cash inflows, and theyearly net income are presented in the schedule below. Yearly after-tax net cash inflows includesavings from the depreciation tax shield. The investment's salvage value at the end of each year isequal to book value, and there will be no salvage value at the end of the investment's life.Yearly After-Tax Netcash InflowsYearly NetIncome$ 8,5009,50010,50011,50012,500Initial Cost andBook ValueYear$41,00027,00016,5009,500$ 26,00023,50021,00018,50016,000234$105,000$52,500Kansas uses a 14% after-tax target rate of return for new investment proposals.PV of $1 at14%FV of $1 at14%1.1401.3001.4821.6891.9252.195FV of an ordinary annuity at14%1.0002.1403.4404.9216.6108.536PV of an ordinary annuity at14%Year0.8770.7690.6750.5920.5190.4560.8771.6472.3222.9143.4333.889Required:A. Calculate the project's payback period. (Do not round intermediate calculations.)B. Calculate the accounting rate of return on the initial investment. (Do not round intermediatecalculations. Round your answer to 1 decimal place.)C. Calculate the proposal's net present value. (Do not round intermediate calculations. Roundyour final answer to nearest dollar amount.)1234456

i) Payback period is the period within which the initial investment is recovered In the given case,…

Kansas Corporation is reviewing an investment proposal that has an initial cost of $70,500. An estimate of the investment's end-of-year book value, the yearly after-tax net cash inflows, and the yearly net income are presented in the schedule below. Yearly after-tax net cash inflows include savings from the depreciation tax shield. The investment's salvage value at the end of each year is equal to book value, and there will be no salvage value at the end of the investment's life. Year 1 2 3 4 5 Initial Cost and Book Value $41,000 27,000 16,500 9,500 Yearly After-Tax Net cash Inflows $ 26,000 23,500 21,000 18,500 16,000 $105,000 Yearly Net Income $ 8,500 9,500 10,500 11,500 12,500 $52,500 Kansas uses a 14% after-tax target rate of return for new investment proposals. Year 1 2 3 4 FV of $1 at 14% 1.140 1.300 1.482 1.689 1.925 2.195 FV of an ordinary annuity at 14% 1.000 2.140 3.440 PV of $1 at PV of an ordinary annuity at 14% 0.877 0.769 0.675 0.592 0.519 14% 0.877 1.647 2.322 2.914 3.433 3.889 4.921 6.610 8.536 6. 0.456

Kansas Corporation is reviewing an investment proposal that has an initial cost of $70,500. An estimate of the investment's end-of-year book value, the yearly after-tax net cash inflows, and the yearly net income are presented in the schedule below. Yearly after-tax net cash inflows include savings from the depreciation tax shield. The investment's salvage value at the end of each year is equal to book value, and there will be no salvage value at the end of the investment's life. Year 1 2 3 4 5 Initial Cost and Book Value $41,000 27,000 16,500 9,500 Yearly After-Tax Net cash Inflows $ 26,000 23,500 21,000 18,500 16,000 $105,000 Yearly Net Income $ 8,500 9,500 10,500 11,500 12,500 $52,500 Kansas uses a 14% after-tax target rate of return for new investment proposals. Year 1 2 3 4 FV of $1 at 14% 1.140 1.300 1.482 1.689 1.925 2.195 FV of an ordinary annuity at 14% 1.000 2.140 3.440 PV of $1 at PV of an ordinary annuity at 14% 0.877 0.769 0.675 0.592 0.519 14% 0.877 1.647 2.322 2.914 3.433 3.889 4.921 6.610 8.536 6. 0.456

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 2P

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