Wilson Company is considering an investment in a machine costing $300,000. The machine has an estimated useful life of seven years at the end of which it will have a salvage value of $15,000. Anticipated yearly revenues associated with the machine amount to $250,000. Yearly costs amount to $150,000. Extra maintenance costs of $60,000 will be incurred at the end of the second and fourth years.
1 The payback period for this investment would be (rounded to the nearest tenth of a year)
2 The net present value of this investment using a discount rate of 10% is:
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1 The payback period for this investment would be
(rounded to the nearest tenth of a year)
|
year
|
Cash flows
|
Cash inflows
|
Operating profit
|
Cumulative cash flows
|
|
0
|
-300,000
|
|
-300,000
|
|
|
1
|
-150,000
|
250,000
|
100,000
|
100,000
|
|
2
|
-210,000
|
250,000
|
40,000
|
140,000
|
|
3
|
-150,000
|
250,000
|
100,000
|
240,000
|
