Question

You have the opportunity to expand your business by purchasing new equipment for $ 222,000. The equipment has a useful life of 9 years. You expect to incur cash fixed costs of $ 79,000 per year to use this new equipment, and you expect to incur cash variable costs in the amount of 5% of cash revenues. Your cost of capital is 10%.

Required
1. Calculate the payback period and the discounted payback period for this investment, assuming you will generate $ 200,000 in cash revenues every year.
2. Assume instead that you expect the following cash revenue stream for this investment:
Year 1............ $ 115,000
Year 2 ............ 105,000
Year 3............ 115,000
Year 4............ 185,000
Year 5............ 195,000
Year 6............ 185,000
Year 7............ 125,000
Year 8............ 135,000
Year 9............ 155,000
Based on this estimated revenue stream, what are the payback and discounted payback periods for this investment?



$1.99
Sales0
Views90
Comments0
  • CreatedJanuary 15, 2015
  • Files Included
Post your question
5000