Question

Question #1)

Cash Payback Period

A project has estimated annual net cash flows of $28,000. It is estimated to cost $165,200.

Determine the cash payback period. Round your answer to one decimal place.
years

Question #2)

Average Rate of Return

Determine the average rate of return for a project that is estimated to yield total income of $773,760 over six years, has a cost of $748,800, and has a $83,200 residual value. Round to the nearest whole number.
%

Answer 1

1	Cash payback period	=	5.9	Years
	Workings:
	Cash payback period	=	Total Cost / Net Annual Cash flows
		=	$165200 / $28000
		=	5.9	Years
2	Annual rate of return	=	31%
	Workings:
	Annual rate of return	=	Average Annual Income / Average Investment
		=	$128960/ $416000
		=	31%
	Net Annual Income
	Annual Revenues	=	$   7,73,760
	Number of years	=	6
	Average annual Income	=	$   1,28,960
	Average Investment
	Factory Equipment	=	$   7,48,800
	Estimated salvage Value	=	$       83,200
(i)	Total	=	$   8,32,000
(i) / 2	Average Investment	=	$   4,16,000