Payback methods, even and uneven cash flows You have the opportunity to expand your business by purchasing new equipment for $159,000. The equipment has a useful life of nine years. You expect to incur cash fixed costs of $96,000 per year to use this new equipment, and you expect to incur cash variable costs in the amount of 10% of cash revenues. Your cost of capital is 12%.

Required

1. Calculate the payback period and the discounted payback period for this investment, assuming you will generate $140,000 in cash revenues every year.

2. Assume instead that you expect the following cash revenue stream for this investment:

Year 1 $ 90,000

Year 2 115,000

Year 3 130,000

Year 4 155,000

Year 5 170,000

Year 6 180,000

Year 7 140,000

Year 8 125,000

Year 9 110,000

Based on this estimated revenue stream, what are the payback and discounted payback periods for this investment?