An electronics company estimated the investment cost for equipment for producing replacement CCTV will be $800,000. The operating...

An electronics company estimated the investment cost for equipment for producing replacement CCTV will be $800,000. The operating and maintenance cost is expected to be $500,000 per year with an annual revenues estimated at $650,000. Considering MARR of 15% per year, find:

The simple payback period=.......years

The discounted payback period=......years

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Expert Solution

The formula to be used = year where cash flow is last negative + (absolute value of last negative value/cash flow of positive cum cash flow)

Simple payback period

Year	Expenditure	Income	Net Cashflow	Cumulative cashflow
0	-800000		-800000	-800000
1	-500000	650000	150000	-650000
2	-500000	650000	150000	-500000
3	-500000	650000	150000	-350000
4	-500000	650000	150000	-200000
5	-500000	650000	150000	-50000
6	-500000	650000	150000	100000

simple payback period = 5+(50000/150000) = 5.33 years

Discounted pay back period:

Year	Expenditure	Income	Net Cashflow	Discounted Cashflow	Cumulative cashflow
0	-800000		-800000	-800000	-800000.00
1	-500000	650000	150000	130434.78	-669565.22
2	-500000	650000	150000	113421.55	-556143.67
3	-500000	650000	150000	98627.43	-457516.23
4	-500000	650000	150000	85762.99	-371753.25
5	-500000	650000	150000	74576.51	-297176.74
6	-500000	650000	150000	64849.14	-232327.60
7	-500000	650000	150000	56390.56	-175937.04
8	-500000	650000	150000	49035.27	-126901.77
9	-500000	650000	150000	42639.36	-84262.41
10	-500000	650000	150000	37077.71	-47184.71
11	-500000	650000	150000	32241.48	-14943.22
12	-500000	650000	150000	28036.07	13092.85

Discounted payback period = 11+(14943.22/28036.07) = 11.53 years

Rahul Sunny answered 2 months ago

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