George and William Phelps are considering a 6 year project that would require a cash outlay of

Question:

George and William Phelps are considering a 6 year project that would require a cash outlay of $80,000 for equipment and an additional $20,000 for working capital that would be released at the end of the project. The equipment would be depreciated evenly over the 6 years and have a salvage value of $8,000 at the end of 6 years. The project would generate before tax annual cash inflows of $28,500. The tax rate is 35% and the company’s discount rate is 14%.

Required:

What is the payback based upon the initial cash outflows?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...