Question

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.)

	Year Cash inflow (outflow) Cumulative Net Cash Inflow (outflow) 0 $(247,000) 1 0 2 53,200 53,200 3 75,900 129,100 4 94,600 223,700 5 126,800 350,500 $103,500 Calculate the payback period: Payback occurs between year: 4 and year: 4 Calculate the portion of the year: Numerator for partial year $247,000 1.4 years Denominator for partial year $177,300 Payback period = 0.7 years

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.)

	Year Cash inflow (outflow) Table factor Present Value of Cash Flows Cumulative Present Value of Cash Flows 0 $(247,000) 1 48,200 0.9090 $43,814 2 53,200 0.8260 $43,943 3 4 0 5 0 0 Break-even time =

Determine the net present value for this investmen

Determine the net present value for this investmen

Answer 1

Year	Cash inflow (outflow)	Cumulative Net Cash Inflow (outflow)
0	($247,000)	($247,000)
1	48200	($198,800)
2	53,200	($145,600)
3	75,900	($69,700)
4	94,600	$24,900
5	126,800	$151,700
	$151,700
Calculate the payback period:
Payback occurs between year:		3	And year:	4
Calculate the portion of the year:
Numerator for partial year		$69,700	1.4	Years
Denominator for partial year		$94,600
Portion of forth year (69700/94600)		0.7
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
Numerator for partial year		$37,630
Denominator for partial year		$78,743
Portion in fifth year (37630/78743)		0.5
Break-even time = 4+0.5		4.5	Years
Net present value of investment (Cumulative Present Value of Cash Flows at end of 5th year)		$41,113