Set the entire question up in an Excel spreadsheet and answer all the questions clearly marked...

Set the entire question up in an Excel spreadsheet and answer all the questions clearly marked in your spreadsheet.

You are considering purchasing a machine (use your imagination) that will initially cost $205,000.00. The machine is expected to last 7 years, and you project that you can sell the worn out machine at the end of 7 years for $55,000.00

Annual operating cash inflows and outflows are projected as follows, and are assumed to occur at the end of each year: Both of years 1 and 2, cash inflow $66,000.00, cash outflow expenses $24,000.00; both of years 3 and 4, cash inflow $72,000.00, cash outflow expenses $27,000.00. In year 5 you have to shut down and rebuild the machine so cash inflows are only $35,000.00 and cash outflows are $44,000.00. In year 6 cash inflow is $65,000.00, and cash outflow expenses are $39,000.00. Finally, in year 7 cash operating inflow is $66,000.00 and cash operating expenses are $34,000.00.

What is the calculated payback period for this proposed investment?

1.b. If the required payback period for your firm is 6 years, would you purchase this machine? Why or why not?

Solutions

Expert Solution

1. Payback period = 6.16 Years

2. sine payback period is more than 6 years it is not recommended to invest in the project

jeff jeffy answered 1 year ago

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