Wheel Manufacturing produces tyres. The company is considering purchasing a new plant to produce new tyres cost $750,000 and have a lifespan of 4 years after which it can be sold for $50,000.

The plant will produce 25,000 tyres a year. Each tyre costs $160 to produce.

The selling price per tyre is $300 in Year 1 and Year 2, and $320 in Year 3 and Year 4. All tyres produced will be sold.

The new plant will have an installation cost of $100,000 upon purchase and a maintenance cost of $50,000 in Year 2, 3 and 4.

The fixed cost will be $110,000 every year.

Draw a timeline detailing a stream of cash flows relating to this project. (Assume that there is no income tax.)

Calculate the payback period based on the net cash flow from your timeline.

Answer rating: 100% (QA)

Solution To draw a timeline of cash flows we need to consider all the cash inflows and outflows asso... View the full answer