Question

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Pearl Manufacturing Company provides glassware machines for major department store retailers. The company has been investigating...

Pearl Manufacturing Company provides glassware machines for major department store retailers. The company has been investigating a new piece of machinery for its production department. The old equipment has a remaining life of five years and the new equipment has a value of $239,400 with a five-year life. The expected additional cash inflows are $63,000 per year. What is the payback period for this investment?

  • A. 2.5 years
  • B. 4.5 years
  • C. 3.8 years
  • D. 5 years

Solutions

Expert Solution

Ans Year Cash Inflow Cumulative Cash Inflow
1           63,000                63,000
2           63,000              126,000
3           63,000              189,000
4           63,000              252,000
5           63,000              315,000
Payback period = 3rd year + $50,400/$63,000
= 3 + 0.8 Year
= 3.8 year

ekkarill92 answered 2 months ago
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