Question
In: Finance
Sure-Lock Ltd. is purchasing new equipment at a cost of $325,000. The equipment will yield incremental...
Sure-Lock Ltd. is purchasing new equipment at a cost of $325,000. The equipment will yield incremental cash flows of $100,000 in the first year of its operation. After that, the incremental cash flows will decrease at a rate of 10% per year. The equipment is expected to last for 6 years, and will be worthless at the end of its life. What is the payback period of the equipment, given that the required rate of return is 15%?
Solutions
Expert Solution
| Payback period is the time period in which the initial investment is recovered | ||
| Year | Cash flows | Cumulative Cash flows |
| 0 | (325,000) | (325,000) |
| 1 | 100,000 | (225,000) |
| 2 | 90,000 | (135,000) |
| 3 | 81,000 | (54,000) |
| 4 | 72,900 | 18,900 |
| 5 | 65,610 | 84,510 |
| 6 | 59,049 | 143,559 |
| Payback period = 3 + 54000/72900 = 3.74074 years | ||
| i.e. 3.74 years |
jeff jeffy answered 1 year agoRelated Solutions
Sure-Lock Ltd. is purchasing new equipment at a cost of $325,000. The equipment will yield incremental...
Sure-Lock Ltd. is purchasing new equipment at a cost of
$325,000. The equipment will yield incremental cash flows of
$100,000 in the first year of its operation. After that, the
incremental cash flows will decrease at a rate of 10% per year. The
equipment is expected to last for 6 years, and will be worthless at
the end of its life. What is the discounted payback period of the
equipment, given that the required rate of return is 15%?
On April 1, 2014, Mattson purchased new equipment at cost of $325,000. Useful life of the...
On April 1, 2014, Mattson purchased new equipment at cost of
$325,000. Useful life of the equipment was estimated at 5 years,
with residual value of $25,000.
Compute the annual depreciation expense for each year under each
depreciation method listed below using half year convention
method:
i. Straight- line method ( Using half year convention )
ii. 150% declining-balance method (Using full year
convention)
iii. 200% declining balance method (Using half year convention
method switching to straight line)
use excel and show formulas A piece of equipment will cost $325,000 new, have a six...
use excel and show formulas A piece of
equipment will cost $325,000 new, have a six year life and a
salvage value of $100,000. Maintenance costs are $30,000 for year 1
and increase at the rate of 6% per year. Determine the annual cost
of this machine if i=12%
You are purchasing a new home and need to borrow $325,000 from a mortgage lender. The...
You are purchasing a new home and need to borrow $325,000 from a
mortgage lender. The lender quotes a rate of 6.5% APR for a 30-year
fixed rate mortgage (with payments made at the end of each month).
The lender offers you the option to "buy down" the interest rate.
If you pay 1 point, the interest rate will be reduced to 6.25% APR
for a 30year fixed rate mortgage. One point is equal to 1% of the
loan value....
Lisa Limited Pty Ltd purchases a new equipment on 1 January 2015. The equipment cost was...
Lisa Limited Pty Ltd
purchases a new equipment on 1 January 2015. The equipment cost was
$200,000 and useful life was 10 years with zero residual value. On
January 1, 2019, the company decides that the equipment will last
total 20 years rather than 10 years. The company uses straight-line
method of depreciation and the fiscal year end is 31 December.
Required:
Calculate depreciate for 2015, 2016, 2017 and 2018.
How will the equipment be reported on the balance sheet...
A company is considering purchasing new equipment. The purchase of the equipment is expected to...
A company is considering purchasing new equipment. The purchase
of the equipment is
expected to generate after tax
savings of $12,600 each year for 8 years. The company can
borrow money at 6%. Assume annual
compounding.
Determine the present value of
the future cash inflows.
Hint: the $12,600 are your annuity payments
"To decrease the cost of operating a lock in a large river, a new system of...
"To decrease the cost of operating a lock in a large river, a
new system of operation is proposed. The system will cost $840,000
to design and build. It is estimated that it will have to be
reworked every 7 years at a cost of $130,000. In addition, a
one-time expenditure of $72,000 will have to be made at the end of
the fifth year for a new type of gear that will not be available
until then. Annual operating...
Assume an equipment costs $325,000 and lasts five years before it is replaced. The operating cost...
Assume an equipment costs $325,000 and lasts five years before
it is replaced. The operating cost is $37,800 a year. Ignore taxes.
What is the equivalent annual cost if the required rate of return
is 14 percent? (Hint: Find the NPV of the equipment cost and annual
operating cost, then solve for the EAC)
Mullum Ltd is considering purchasing new laptop computers. The new laptops have an up-front cost (t=0)...
Mullum Ltd is considering purchasing new laptop computers. The
new laptops have an up-front cost (t=0) of $2,400,000. The laptops
are expected to have a four-year life, and will be fully
depreciated on a straight-line basis over four years. The company
anticipates that after four years, the salvage value will be
$200,000. If Mullum goes ahead with the proposed product, it will
have an effect on Mullum’s net working capital. At the outset, t =
0, net working capital will...
Burnaby Ltd. is considering the acquisition of new production equipment. If purchased, the new equipment would...
Burnaby Ltd. is considering the acquisition of new production
equipment. If purchased, the new equipment would cost $1,850,000.
Installation and testing costs would be $35,000 and $25,000
respectively. Once operational, the equipment will cause an
increase in working capital of $120,000. The new equipment is
expected to generate increased annual sales of $720,000. Variable
costs to operate the machine are estimated at 42% of sales and
annual fixed costs would be lowered by $75,000. The
equipmenthasanestimate6yearlifeandasalvagevalueof$90,000.
Thecompanyrequiresan11% return on its...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- What is your opinion on the use of AI technology? Is it necessary or is it...
- For this problem, carry at least four digits after the decimal in your calculations. Answers may...
- Why is it okay to speculate on Currency?
- What is the budgeting cycle and master budget? Why should companies use a master budget?
- please i need to have good answers and easy to understand This exercise refers to the...
- (1 point) Find y as a function of t if y′′+25y=0, y(0)=4,y′(0)=6. y= ?
- What are the six steps of hypothesis testing? What does it mean if we reject the...
ADVERTISEMENT