Sentinel Company is considering an investment in technology to improve its opera
ID: 2437358 • Letter: S
Question
Sentinel Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of $257,000 and will yield the following expected cash flows. Management requires investments to have a payback period of 3 years, and it requires a 8% return on investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the table provided.)
Required:
1. Determine the payback period for this investment.
2. Determine the break-even time for this investment.
3. Determine the net present value for this investment.
Determine the payback period for this investment. (Enter cash outflows with a minus sign. Round your Payback Period answer to 1 decimal place.)
Determine the break-even time for this investment. (Enter cash outflows with a minus sign. Round your break-even time answer to 1 decimal place.)
Determine the net present value for this investment.
Period Cash Flow 1 $ 48,500 2 52,900 3 75,900 4 94,700 5 126,900Explanation / Answer
1. Payback Period = 3.8 Years
*
2. Break-Even Time = 4.3 Years
3. NPV = $ 49,486
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Year Cash Inflow Cumulative Net Cash Inflow 0 $ (257,000) $ (257,000) 1 $ 48,500 $ (208,500) 2 $ 52,900 $ (155,600) 3 $ 75,900 $ (79,700) 4 $ 94,700 $ 15,000 5 $ 126,900 $ 141,900 Payback occurs between year : 3 and year 4 Portion of the Year Unrecovered investment $ 79,700 0.8 Years Cash flow during the year $ 94,700 Payback Period 3.8 YearsRelated Questions
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