Jell Company is considering the acquisition of a machine that costs $489,097.00.

Question

Jell Company is considering the acquisition of a machine that costs $489,097.00. The machine is expected to have a useful life of 6 years, a negligible residual value, an annual cash flow of $98,006.00, and annual operating income of $83,305.10. Determine the estimated cash payback period for the machine (round to one decimal points).

Select the correct answer.

1.2 years

Determine the amount of the estimated average income for a proposed investment of $76,214.00 in a fixed asset, with a useful life of four years, straight-line depreciation, no residual value, and an expected total net income of $35,130.00 for the 4 years (round to two decimal points).

Select the correct answer.

$2,977.00

Below is a table for the present value of $1 at Compound interest.

Below is a table for the present value of an annuity of $1 at compound interest.

Using the tables above, determine the present value of $13,533.00 (rounded to the nearest dollar) to be received one year from today, assuming an earnings rate of 6%.

Select the correct answer.

5.9 years 5.0 years 7.0 years

1.2 years

Determine the amount of the estimated average income for a proposed investment of $76,214.00 in a fixed asset, with a useful life of four years, straight-line depreciation, no residual value, and an expected total net income of $35,130.00 for the 4 years (round to two decimal points).

Select the correct answer.

$35,130.00 $19,053.50 $8,782.50

$2,977.00

Below is a table for the present value of $1 at Compound interest.

Year 6% 10% 12% 1 0.943 0.909 0.893 2 0.890 0.826 0.797 3 0.840 0.751 0.712 4 0.792 0.683 0.636 5 0.747 0.621 0.567

Below is a table for the present value of an annuity of $1 at compound interest.

Year 6% 10% 12% 1 0.943 0.909 0.893 2 1.833 1.736 1.690 3 2.673 2.487 2.402 4 3.465 3.170 3.037 5 4.212 3.791 3.605

Using the tables above, determine the present value of $13,533.00 (rounded to the nearest dollar) to be received one year from today, assuming an earnings rate of 6%.

Select the correct answer.

$13,533 $12,762 $12,721 $14,345

Explanation / Answer

1. Estimated cash payback period: 5.0 years

Cash payback = Investment / Annual cash inflows = $489,097 / $98,006 = 5.0

2. Estimated average income: $8,782.50

Average income = Total net income / 4 years = $35,130 / 4 = $8,782.50

3. Present value: $12,762

Present value = $13,533 x PV of $1 (i=6%, n= 1 year) = $13,533 x 0.943 = $12,762

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