1) Determine the payback period for a proposed investment costing $50,000 as fol
ID: 2766457 • Letter: 1
Question
1)
Determine the payback period for a proposed investment costing $50,000 as follows.
Year Cash flow
0 -$50,000 investment
1 $10,000
2 $12,000
3 $15,000
4 $18,000
5 $20,000
a)year 5
b)year 4
c)year 2
d)year 3
2)
Determine the conventional payback period (to the nearest year) for the following project if the MARR is 10%.
initial cost $10,000
Annual maintenance $500 in year 1, increasing by $200 per year
Annual Income $3000
Salvage Value $4000
Useful Life 10 years
a) year 4
b)year 3
c)year 5
d) year 6
Explanation / Answer
1) Year CF Commulative CF 0 -50000 -50000 1 10000 -40000 2 12000 -28000 3 15000 -13000 4 18000 5000 5 20000 25000 Payback period = 3 years + 13000/18000 = 3.72 years Hence option (b) is correct 2) Cash outflow Cash inflow Net cash flow 0 -10000 0 -10000 -10000 1 500 3000 2500 -7500 2 700 3000 2300 -5200 3 900 3000 2100 -3100 4 1100 3000 1900 -1200 5 1300 3000 1700 500 6 1500 3000 1500 2000 7 1700 3000 1300 3300 8 1900 3000 1100 4400 9 2100 3000 900 5300 10 2300 7000 4700 10000 Convential payback period is closest to 5 years Hence option c is correct
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