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Flower unlimited is considering purchasing an additional delivery truck that will have seven-year useful life. The...

Flower unlimited is considering purchasing an additional delivery truck that will have seven-year useful life. The new truck will cost $42,000. Cost savings with this truck are expected to be $12,800 for the first two years, $8,900fo the following two years, and $5000 for the last three years of the truck’s useful life. What is the payback period for this project? What is discounted payback period for this project with a discount rate of 10 percent?

please provide formula

Solutions

Expert Solution

Payback period= Full years until recovery + unrecovered cost at the start of the year/cash flow during the year

Payback method= 3 years + $7,500/ $8,900

                           = 3 years+ 0.84

                            = 3.84 years.

Discounted payback method= 6 years + 1,092.67/ 2,565.68

                                             = 6 years + 0.43

= 6.43 years.

In case of any query, kindly comment on the solution.

jeff jeffy answered 1 year ago
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