The management of Arnold Corporation is considering the purchase of a new machin

Question

The management of Arnold Corporation is considering the purchase of a new machine costing $400,000. 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:

Y1 $100,000   180,000
Y2 40,000      120,000
Y3 20,000      100,000
Y4 10,000       90,000
Y5 10,000       90,000
The cash payback period for this investment is:

a) 4 years
b) 3 years
c) 2 years
d) 5 years

Explanation / Answer

Hence , the paybac period would be 5 years .

Year Cash Outflow Cash Inflow Net Cash Flow Cumulative Cash Flows 1 100000 180000 80000 80000 2 40000 120000 80000 160000 3 20000 100000 80000 240000 4 10000 90000 80000 320000 5 10000 90000 80000 400000

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