Question

In: Economics

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

Solutions

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 7 months ago
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