Answer:
The complete part of the question is found below:
Neglect the salvage value for payback period rate of return
Applicable rate of return is 15%
Answers:
Payback is 5.33 years
Present worth is -$18,909.48
UAC is -$ 4,996.58
Rate of return is 18.75%
Explanation:
In case of an even cash flow like this when the net cash flow yearly is $15,000($40,000-$25000), the payback period is initial investment/net annual cash flow
Payback=$80,000/$15,000= 5.33 years
Present is computed thus
Year cash flow discount factor pv=cash flow*discount factor
0 -$80,00 1/(1+0.15)^0 (80,000.00)
1 $15000 1/(1+0.15)^1 13,043.48
2 $15000 1/(1+0.15)^2 11,342.16
3 $15,000 1/(1+0.15)^3 9,862.74
4 $15,000 1/(1+0.15)^4 8,576.30
5 $15,000 1/(1+0.15)^5 7,457.65
6 $25,000 1/(1+0.15)^6 10,808.19
present worth (18,909.48)
The uniform annual cost=NPV*r/(1-(1+r)^-n
NPV is -$18,909.48*0.15/(1-(1+0.15)^-6)
=-$ (2,836.42)
/0.567672404
=-$ (4,996.58)
The rate of return can be computed thus:
rate of return=annual cash flow/initial investment*100
annual cash flow is $15000
initial investment is $80,000
rate of return=15,000/80000*100
=18.75%
