In: Accounting
Sentinel Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of $247,000 and will yield the following expected cash flows. Management requires investments to have a payback period of 2 years, and it requires a 10% 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 $ 48,200 2 53,200 3 75,900 4 94,600 5 126,800 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.)
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etermine the break-even time for this investment. (Enter cash outflows with a minus sign. Round your break-even time answer to 1 decimal place.)
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Determine the net present value for this investmen
Determine the net present value for this investmen
Year |
Cash inflow (outflow) |
Cumulative Net Cash Inflow (outflow) |
||
0 |
($247,000) |
($247,000) |
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1 |
48200 |
($198,800) |
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2 |
53,200 |
($145,600) |
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3 |
75,900 |
($69,700) |
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4 |
94,600 |
$24,900 |
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5 |
126,800 |
$151,700 |
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$151,700 |
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Calculate the payback period: |
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Payback occurs between year: |
3 |
And year: |
4 |
|
Calculate the portion of the year: |
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Numerator for partial year |
$69,700 |
1.4 |
Years |
|
Denominator for partial year |
$94,600 |
|||
Portion of forth year (69700/94600) |
0.7 |
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Payback period (3+0.7) |
3.7 |
Years |
Year |
Cash inflow (outflow) |
Table factor @10% |
Present Value of Cash Flows |
Cumulative Present Value of Cash Flows |
|
0 |
($247,000) |
1 |
($247,000) |
($247,000) |
|
1 |
48,200 |
0.909 |
$43,814 |
($203,186) |
|
2 |
53,200 |
0.826 |
$43,943 |
($159,243) |
|
3 |
75,900 |
0.751 |
$57,001 |
($102,242) |
|
4 |
94,600 |
0.683 |
$64,612 |
($37,630) |
|
5 |
126,800 |
0.621 |
$78,743 |
$41,113 |
|
Break even time between |
Year 4 |
And |
Year 5 |
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Numerator for partial year |
$37,630 |
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Denominator for partial year |
$78,743 |
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Portion in fifth year (37630/78743) |
0.5 |
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Break-even time = 4+0.5 |
4.5 |
Years |
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Net present value of investment (Cumulative Present Value of Cash Flows at end of 5th year) |
$41,113 |