Answer:
1. $80,855.50
2. 16.89%
Explanation:
The computations are shown below:
1. The computation of the Net present value is shown below
= Present value of all yearly cash inflows after applying discount factor + salvage value - initial investment
where,
The Initial investment is $5,150,000
All yearly cash flows would be
= Net operating income + depreciation expense
= $870,000 + $765,000
= $1,635,000
The yearly cash flows would be
= Annual cash flows × PVIFA for 5 years at 17%
= $1,635,000 × 3.1993
= $5,230,855.50
Refer to the PVIFA table
Now put these values to the above formula
So, the value would equal to
= $5,230,855.50 - $5,150,000
= $80,855.50
b. The formula to compute the simple rate of return is shown below:
= Annual net operating income ÷ Initial investment
= $870,000 ÷ $5,150,000
= 16.89%
