The management of Nebraska Corporation is considering the purchase of a new mach
ID: 2379757 • Letter: T
Question
The management of Nebraska Corporation is considering the purchase of a new machine costing $490,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability in this situation:
Year
Income from
Operations
Net Cash
Flow
1
$100,000
$180,000
2
40,000
120,000
3
40,000
100,000
4
10,000
90,000
5
10,000
120,000
13. The cash payback period for this investment is:
a.
5 years
b.
4 years
c.
2 years
d.
3 years
Year
Income from
Operations
Net Cash
Flow
1
$100,000
$180,000
2
40,000
120,000
3
40,000
100,000
4
10,000
90,000
5
10,000
120,000
Explanation / Answer
Hi,
Please find the answer as follows:
Total Investment = 490000
Amount Recovered in First 4 Years = 180000 + 120000 + 100000 + 90000 = 490000
Since the total amount of investment of 490000 is recovered in the first 4 years, Cash Payback Period is equal to 4 Years.
Option B (4 Years) is the correct answer.
Thanks.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.