Question

Sentinel Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of $256,000 and will yield the following expected cash flows. Management requires investments to have a payback period of 3 years, and it requires a 8% return on investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the table provided.)

Period	Cash Flow
1		$	47,400
2			52,800
3			76,600
4			95,800
5			125,100

Required:
1. Determine the payback period for this investment.
2. Determine the break-even time for this investment.
3. Determine the net present value for this investment.

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3

Determine the payback period for this investment. (Enter cash outflows with a minus sign. Round your Payback Period answer to 1 decimal place.)

	Year Cash inflow (outflow) Cumulative Net Cash Inflow (outflow) 0 $(256,000) 1 2 0 3 0 4 0 5 0 0 Payback period =

• Required 1
• Required 2

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3

Determine the payback period for this investment. (Enter cash outflows with a minus sign. Round your Payback Period answer to 1 decimal place.)

	Year Cash inflow (outflow) Cumulative Net Cash Inflow (outflow) 0 $(256,000) 1 2 0 3 0 4 0 5 0 0 Payback period =

• Required 1
• Required 2

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3

Determine the payback period for this investment. (Enter cash outflows with a minus sign. Round your Payback Period answer to 1 decimal place.)

	Year Cash inflow (outflow) Cumulative Net Cash Inflow (outflow) 0 $(256,000) 1 2 0 3 0 4 0 5 0 0 Payback period =

• Required 1
• Required 2

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3

Determine the payback period for this investment. (Enter cash outflows with a minus sign. Round your Payback Period answer to 1 decimal place.)

	Year Cash inflow (outflow) Cumulative Net Cash Inflow (outflow) 0 $(256,000) 1 2 0 3 0 4 5 0 0 Payback period =

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3

Determine the net present value for this investment.

	Net present value

• Required 2
• Required 3

Answer 1

1) Calculation of Payback Period (Amounts in $)

Year	Cash inflow (outflow)	Cumulative Net Cash Inflow (outflow)
0	(256,000)	(256,000)
1	47,400	(208,600)
2	52,800	(155,800)
3	76,600	(79,200)
4	95,800	16,600
5	125,100	141,700
	141,700
Payback occurs between year:		3	and year:	4
Calculation of portion of the year:
Numerator for partial year		79,200	0.8	years
Denominator for partial year		95,800
Payback period =		3.8	years

As the the cumulative cash flows become positive (i.e. inflows) in year 4, the pay back period would be between 3rd and 4th year.

Therefore the payback period is 3.8 years.

2) Calculation of Break Even Time for Investment (Amounts in $)

Year	Cash Inflow (Outflow) (A)	Table factor (8%) (B)	Present Value of Cash Flows (A*B)	Cumulative Present Value of Cash Flows
0	(256,000)	1.0000	(256,000)	(256,000)
1	47,400	0.9259	43,517	(212,483)
2	52,800	0.8573	45,265	(167,218)
3	76,600	0.7938	60,805	(106,413)
4	95,800	0.7350	70,413	(36,000)
5	125,100	0.6806	85,143	49,143
Break Even Time occurs between year:		4	and year:	5
Calculation of portion of the year:
Numerator for partial year		36,000	0.4	years
Denominator for partial year		85,143
Break Even Time =		4.4	years

Therefore break even time is 4.4 years.

3) Net Present Value = $49,143 (as calculated in part 2)