Question

WileyPLUS LUS WileyPLUS: MyWleyPLUS I Help I Contact Us I Log Out Davis, Managerial Accounting, 3e PRIN II MANAGERIAL ACCOUNTING (ACCT 2102) & Practice Assignment Gradebook ORION Downloadable eTextbook Assignment CALCULATOR FULL SCREEN PRINTER VERSION NEXT RCES BACK Your answer is partially correct. Try again. The Marigold Company is planning to purchase $540,200 of equipment with an estimated seven-year life and no estimated salvage value. The company has projected the following annual cash flows for the investment. Projected Cash Flows Year 1 $214,000 2 169,500 tudy 3 124,500 4 55,200 5 55,200 6 48,500 7 48,500 $715,400 Total (a) Calculate the payback period for the proposed equipment purchase. Assume that all cash flows occur evenly throughout the year 3 years and Payback period months (b) If Marigold requires a payback period of three years or less, should the company make this investment? should not make this investment The company Privacy Policy 2000-2019 John Wiley & Sons. Inc. All Rights Reserved. A Division of John Wiley & Sons. Inc. I Version 4.24.17.1

Answer 1

Projected cash flow $214,000 $169,500 $124,500 $55,200 $55,200 $48,500 $48,500 $715,400 Cumulative cash flow $214,000 $383,500 $508,000 $563,200 $618,400 $666,900 $715,400 Total cash inflow upto 3rd year Cash flow required in 4th year (540200-508000) Period in 4th year to earn $32,200 is: [(32200/55200)x12] 508000 3 year 32200 7.00 7 months Pay back period 3 years 7 months Cash flow Purchase price Installation Salvage of old equipment Salvage of new equipment Variable cost savings Avoided overhaul Timing Year 0 Year 0 Year o Year 10 Year 1-10 Year 4 Amount -$168,800 $3,125 $12,700 $3,940 $30,240 $10,800

A 1 2 1 32 4 3 5 4 65 Projected cash flow 214000 169500 124500 55200 55200 48500 48500 =SUM(B2:38) Cumulative cash flow =B2 =C2+B3 =C3+B4 =C4+B5 =C5+B6 =C6+B7 =C7+B8 3 year Total cash inflow upto 3rd year Cash flow required in 4th year (540200-508000) Period in 4th year to earn $32,200 is: [(32200/55200)x12] 508000 =540200-508000 =(32200/55200)*12 7 months Pay back period 3 years 7 months Cash flow Purchase price Installation Salvage of old equipment Salvage of new equipment Variable cost savings Avoided overhaul Timing Year 0 Year 0 Year 0 Year 10 Year 1-10 Year 4 Amount -168800 -3125 12700 3940 =(11.02-10.9) *252000 10800