First Choice Carpets is considering purchasing new weaving equipment costing $730,000. The company's management has estimated...
First Choice Carpets is considering purchasing new weaving equipment costing $730,000. The company's management has estimated that the equipment will generate cash inflows as follows:
|
Year 1 |
$204,000 |
|
2 |
204,000 |
|
3 |
266,000 |
|
4 |
266,000 |
|
5 |
150,000 |
Considering the residual value is zero, calculate the payback period. (Round your answer to two decimal places.)
A.
4.61 years
B.
3.42 years
C.
3.70 years
D.
3.21 years
Homework Answers
| Year | Cash flows | Cumulative cash flows |
| 1 | $204,000 | $204,000 |
| 2 | $204,000 | $408,000 |
| 3 | $266,000 | $674,000 |
| 4 | $266,000 | $940,000 |
| 5 | $150,000 | $1,090,000 |
Payback period = 3 + ($730,000 - $674,000) / $266,000
= 3 + 0.21
= 3.21 years
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