the project description
March 7, 2020
problems total
March 7, 2020

Exercise 25-1 Payback period computation; uneven cash flows LO P1

Beyer Company is considering the purchase of an asset for $360,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year.

 

 Year 1Year 2Year 3Year 4Year 5Total
  Net cash flows $80,000  $50,000  $70,000  $250,000  $13,000  $463,000 

 

 

Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your answers to 2 decimal places.)

 

A machine can be purchased for $210,000 and used for 5 years, yielding the following net incomes. In projecting net incomes, double-declining balance depreciation is applied, using a 5-year life and a zero salvage value.

 

 Year 1Year 2Year 3Year 4Year 5
  Net incomes $13,000  $28,000  $53,000  $40,500  $103,000 

 

 

Compute the machine’s payback period (ignore taxes). (Round your intermediate calculations to 3 decimal places and payback period answer to 3 decimal places.)

 

Exercise 25-3 Payback period computation; even cash flows LO P1

Compute the payback period for each of these two separate investments:

 

 

a.A new operating system for an existing machine is expected to cost $240,000 and have a useful life of four years. The system yields an incremental after-tax income of $69,230 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $9,000.
b.A machine costs $180,000, has a $13,000 salvage value, is expected to last seven years, and will generate an after-tax income of $38,000 per year after straight-line depreciation.

 

 

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