In: Finance
PLEASE, I need it within 30 minutes.
A clothing retailer plans to automate its payroll processing by using a scanner that identifies which clerks sold which item. Management is excited about this system because it can connect directly to the company's existing computer system. The new automated system will save $14,200 a year in labor. The new system will cost $40,000 to build and test prior to operation. Operating cost will be $2,600 per year. The system has 6 years useful life. The expected net salvage value of the system is estimated at $2,500. If the company's interest rate is 10%, in what year does the DISCOUNTED payback occur for this project? Assume year-end cash flows, and enter your answer as an integer."
Discounted Payback | 4 years |
4.45 years rounded off to 4 years.
Year | Cost | Annual savings | Operating cost | Salvage | Net Cash flows | Discounted CF | Cumulative CF |
0.00 | -40000.00 | -40000.00 | -40000 | -40000 | |||
1 | 14200.00 | -2600.00 | 11600.00 | 10545.45 | -29454.55 | ||
2 | 14200.00 | -2600.00 | 11600.00 | 9586.78 | -19867.77 | ||
3 | 14200.00 | -2600.00 | 11600.00 | 8715.25 | -11152.52 | ||
4 | 14200.00 | -2600.00 | 11600.00 | 7922.96 | -3229.56 | ||
5 | 14200.00 | -2600.00 | 11600.00 | 7202.69 | 3973.13 | ||
6 | 14200.00 | -2600.00 | 2500 | 14100.00 | 7959.08 | 11932.21 |
Discounted Payback = Year in which Discounted Cumulative CF is last negative -(Last negative discounted cumulative CF/ CF of next year)