Question
In: Accounting
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 | ||
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