Baird Company has an opportunity to purchase a forklift to use in its heavy equipment rental...

Transcribed Image Text:

Baird Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Baird would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow: Year Year 1 Nature of Item Cash Inflow Purchase price Cash Outflow $79,800 Year 1 Revenue $31,000 Year 2 Revenue 31,000 Year 3 Revenue 26,000 Year 3 Major overhaul 8,200 Year 4 Revenue 17,000 Year 5 Revenue 15,000 Year 5 Salvage value 7,000 Required a.&b. Determine the payback period using the accumulated and average cash flows approaches. Note: Round your answers to 1 decimal place. a. Payback period (accumulated cash flows) b. Payback period (average cash flows) years years Baird Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Baird would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow: Year Year 1 Nature of Item Cash Inflow Purchase price Cash Outflow $79,800 Year 1 Revenue $31,000 Year 2 Revenue 31,000 Year 3 Revenue 26,000 Year 3 Major overhaul 8,200 Year 4 Revenue 17,000 Year 5 Revenue 15,000 Year 5 Salvage value 7,000 Required a.&b. Determine the payback period using the accumulated and average cash flows approaches. Note: Round your answers to 1 decimal place. a. Payback period (accumulated cash flows) b. Payback period (average cash flows) years years