Question

Heels, a shoe manufacturer is evaluating the costs and benefits of new equipment that would custom fit each pair of athletic shoes. The customer would have his or her foot scanned by digital computer equipment, this information would be used to cut the raw materials to provide the customer a perfect fit. The new equipment costs $101,000 and is expected to generate an additional $40,000 in cash flows for 5 years. A bank will make a $101000 loan to the company at a 12% Interest rate for this equipment's purchase and compute the recovery time for both the payback period and break-even time. (PV of $1. EV of $1. PVA of St and EVA of $ (Use appropriate factors) from the tables provided.) Complete this question by entering your answers in the tabs below. Payback period Break time Compute the recovery time for the break-even time. (Cumulative net cash outflows must be entered with a minus sign. Round You Break-even time answer to 1 decimal place) Chart Values are based on Year Cash now Outflow PV Factor Present Value Cumulative Present Value of allow Out 0 1 5 (1010001 10000 $(101.000 (10000) 2 3 5 155 SAMSUNG

Answer 1

Chart value based on

i=12
Year	Cash inflow (outflow)	X	PV factor	=	Present Value	Cumulative Present value of Inflows(Outflow
0	$(10,1000)		1.0000		$(10,1000)	$(10,1000)
1	$40000		0.8939		$35716	$(65284)
2	$40000		0.7972		$31888	$(33396)
3	$40000		0.7118		$28472	$(4924)
4	$40000		0.6355		$25420	$20496
5	$40000		0.5674		$22696	$43192

Break-even time=A+(B/C)
A=Last year with a negative cumulative cash flow=3
B=Absolute value of cumulative cash flow at the end of period A=$ 4924
C=Present value of cash inflow for the period following A=$ 25420
Break-even time=3+(4924/25420)=3+0.1937=3.2 years