Sentinel Company is considering an investment in technology to improve its opera

Question

Sentinel Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of $255,000 and will yield the following expected cash flows. Management requires investments to have a payback period of 2 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.) Period Cash Flow 1 $ 47,700 2 52,400 3 76,500 4 95,000 5 126,400

Required: 1. Determine the payback period for this investment. (Enter cash outflows with a minus sign. Round your Payback Period answer to 1 decimal place.)

2. Determine the break-even time for this investment. (Enter cash outflows with a minus sign. Round your Payback Period answer to 1 decimal place. Round all dollar amounts to nearest whole number.)

3. Determine the net present value for this investment.

Explanation / Answer

1./

PAYBACK PERIOD

= 3YEAR + [($78400) / $95000]

= 3 + 0.83

= 3.83 YEARS

2./

BREAK EVEN TIME

= 4YEARS + [($30361.35) / $86027.84]

= 4 + 0.35

= 4.35 YEARS

3./

YEAR CASH FLOW CUMULATIVE CASH FLOW 0 ($255000) ($255000) 1 $47700 (207300) 2 $52400 ($154900) 3 $76500 ($78400) 4 $95000 $16600

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