Question

In: Accounting

(Ignore income taxes in this problem.) Baldock Inc. is considering the acquisition of a new machine...

(Ignore income taxes in this problem.) Baldock Inc. is considering the acquisition of a new machine that costs $420,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash flows that would be produced by the machine are:

Incremental Net Operating Income Incremental Net Cash Flows
Year 1 $61,000 $145,000
Year 2 $67,000 $151,000
Year 3 $78,000 $162,000
Year 4 $41,000 $125,000
Year 5 $83,000 $167,000


Assume cash flows occur uniformly throughout a year except for the initial investment.

The payback period of this investment is closest to:

5.0 years

2.8 years

3.2 years

1.9 years

Solutions

Expert Solution

Answer: 2.8 years

Explanation

Calculation of Pay Back Period
Year Cash Inflow Cumulative Net  
(Out Flow) ($) Cash Inflow (Out Flow) ($)
0                                 (420,000.00)                         (420,000.00)
1                                  145,000.00                         (275,000.00)
2                                  151,000.00                         (124,000.00)
3                                  162,000.00                            38,000.00
4                                  125,000.00                          163,000.00
5                                  167,000.00                          330,000.00
Payback period = 2nd year + (124,000 / 162,000)
= 2.8 years

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

(Ignore income taxes in this problem.) Acme, Inc. is considering a project that would have a...
(Ignore income taxes in this problem.) Acme, Inc. is considering a project that would have a ten-year life and would require a $1,275,000 investment in equipment. At the end of ten years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows:             Sales.......................................................... $1,750,650 Less variable expenses.............................. 900,125 Contribution margin.................................. 850,525 Less fixed expenses: Fixed out-of-pocket cash expenses........ $517,100 Depreciation........................................... 119,200     636,300 Net operating income................................ $...
(Ignore income taxes in this problem.) Ursus Inc., is considering a project that would have a...
(Ignore income taxes in this problem.) Ursus Inc., is considering a project that would have a ten-year life and would require a $1,000,000 investment in equipment. At the end of ten years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows: Sales $2,000,000 Variable Expenses $1,400,000 Contribution Margin $600,000 Fixed Expenses $400,000 Net Operating Income $200,000 All of these items, except for depreciation of $92,500 a...
Problem 2 (Ignore income taxes in this problem.) Miami Medical Center, Inc., is considering a project...
Problem 2 (Ignore income taxes in this problem.) Miami Medical Center, Inc., is considering a project that would have a ten-year life and would require a $1,200,000 investment in equipment. At the end of ten years, the project would terminate, and the equipment would have no salvage value. The project would provide net operating income each year as follows: Sales $1,700,000 Variable expenses $1,200,000 Contribution margin $500,000 Fixed expenses:    Fixed out-of-pocket cash expenses $200,000    Depreciation $120,000 Net operating...
1.        (Ignore income taxes in this problem.) Acme, Inc. is considering a project that would have...
1.        (Ignore income taxes in this problem.) Acme, Inc. is considering a project that would have a ten-year life and would require a $1,275,850 investment in equipment. At the end of ten years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows:             Sales........................................................... $1,750,650 Less variable expenses............................... 900,125 Contribution margin.................................. 850,525 Less fixed expenses: Fixed out-of-pocket cash expenses........ $517,100 Depreciation........................................... 119,200     636,300 Net operating income...................................
Ignore income taxes in this problem.) The Zinger Corporation is considering an investment that has the...
Ignore income taxes in this problem.) The Zinger Corporation is considering an investment that has the following data: Year 1Year 2Year 3Year 4Year 5 Investment$13,500$4,100Cash inflow$3,100$3,100$8,000$5,100$5,100 Cash inflows occur evenly throughout the year. The payback period for this investment is: (Round your answer 3 years 4 years 3.7 years 4.7 years
(Ignore income taxes in this problem.) Monson Company is considering three investment opportunities with cash flows...
(Ignore income taxes in this problem.) Monson Company is considering three investment opportunities with cash flows as described below: Required: Compute the net present value of each project assuming Monson Company uses a 12% discount rate. Which Project should Monson choose and why? Project A: Cash investment now $ 15,000 Cash inflow at the end of 5 years $ 21,000 Cash inflow at the end of 8 years $ 21,000 Project B: Cash investment now $ 11,000 Annual cash outflow...
(Ignore income taxes in this problem.) Becker Billing Systems, Inc., has an antiquated high-capacity printer that...
(Ignore income taxes in this problem.) Becker Billing Systems, Inc., has an antiquated high-capacity printer that needs to be upgraded. The system either can be overhauled or replaced with a new system. The following data have been gathered concerning these two alternatives: Overhaul Present System Purchase New System Working capital required............ — $80,000 Purchase cost when new............. $300,000 $500,000 Accumulated depreciation.......... $220,000 — Overhaul costs needed now........ $250,000 — Annual cash operating costs....... $120,000 $90,000 Salvage value now...................... $90,000 —...
Vandezande Inc. is considering the acquisition of a new machine that costs $435,000 and has a...
Vandezande Inc. is considering the acquisition of a new machine that costs $435,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash flows that would be produced by the machine are (Ignore income taxes.): Incremental Net Operating Income Incremental Net Cash Flows Year 1 $ 76,000 $ 155,000 Year 2 $ 82,000 $ 161,000 Year 3 $ 93,000 $ 175,000 Year 4 $ 56,000 $ 158,000 Year 5...
(Ignore income taxes in this problem.) Overland Corporation has gathered the following data on a proposed...
(Ignore income taxes in this problem.) Overland Corporation has gathered the following data on a proposed investment project: Click here to view Exhibit 8B-1 and Exhibit 8B-2 to determine the appropriate discount factor(s) using tables. Investment required in equipment $ 410,000 Annual cash inflows $ 60,000 Salvage value of equipment $ 0 Life of the investment 16 years Discount rate 9 % The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for...
(Ignore income taxes in this problem.) Overland Corporation has gathered the following data on a proposed...
(Ignore income taxes in this problem.) Overland Corporation has gathered the following data on a proposed investment project: Click here to view Exhibit 8B-1 and Exhibit 8B-2 to determine the appropriate discount factor(s) using tables. Investment required in equipment $ 560,000 Annual cash inflows $ 82,000 Salvage value of equipment $ 0 Life of the investment 16 years Discount rate 9 % The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT