The manager asks you to compute the payback period for an investment she is cons
ID: 2578980 • Letter: T
Question
The manager asks you to compute the payback period for an investment she is considering. She provides you with the following information: The equipment will require a $22,000 investment It will have no salvage value at the end of its 3 year useful life Each year the new equipment will result in $8,000 Net Income Each year the new equipment will generate $9,500 in net cash inflows. With the information provided, what payback period will you report to the manager? Show your work. The manager decides that figuring payback period is for wimps. She instead asks you to calculate the Net Present Value of the proposal in question #10. You check with the Treasurer’s Office and find that the company’s desired investment return (cost of capital) is 10%. Report back to the manager as to the investment’s Net Present Value and whether the project should be accepted or rejected. Show your work.
Explanation / Answer
Payback period : Initial investment/annual cash flow
= 22000/9500
Payback period = 2.32 years
Net present value = (present value of cash inflow-Present value of cash outflows)
= (9500*2.487)-(22000*1)
Net present value = 1626.50
Yes project should be accepted...
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