Sepchek Oil Field Services is considering the installation of a new electronic surveillance system for its warehouse.

Question:

Sepchek Oil Field Services is considering the installation of a new electronic surveillance system for its warehouse. The system has an initial cost of $ 160,000 and an expected life of five years. For its life, the system will save the company labor costs for security guards.

a. If the company’s cost of capital is 10 percent, how much annual increase in cash flows is necessary to minimally justify the investment?

b. Based on your answer to (a), what would be the payback period for this investment?

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...