Question: Exercise 26-1 (Static) Payback period, equal cash flows, and depreciation adjustment LO P1 Information for two alternative projects involving machinery investments follows. Project 1 requires
Exercise 26-1 (Static) Payback period, equal cash flows, and depreciation adjustment LO P1
Information for two alternative projects involving machinery investments follows. Project 1 requires an initial investment of $135,000. Project 2 requires an initial investment of $98,000.
| Annual Amounts | Project 1 | Project 2 |
|---|---|---|
| Sales of new product | $ 100,000 | $ 80,000 |
| Expenses | ||
| Materials, labor, and overhead (except depreciation) | 65,000 | 32,000 |
| DepreciationMachinery | 20,000 | 18,000 |
| Selling, general, and administrative expenses | 8,000 | 20,000 |
| Income | $ 7,000 | $ 10,000 |
(a) Compute each projects annual net cash flow. (b) Compute payback period for each investment.
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