Question

An electronics company estimated the investment cost for equipment for producing replacement CCIVWIII be $800,000. The operating and maintenance cost is expected to be $500,000 per year with an annual revenues estimated at $650,000. Considering MARR of 15% per year, find: The simple payback period=.......years The discounted payback period=......years

Answer 1

(1)

Simple payback period = initial investment/annual net cash flow

Annual net cash flow = $650000 - $500000 = $150000

Therefore,

Payback period = $800000/$150000

= 5.33 years

(2)

discounted payback period:

Year	cash flow	PVF@15%	Present value	cumulative present value
1	$150000	0.870	$130500	$130500
2	$150000	0.756	$113400	$243900
3	$150000	0.658	$98700	$342600
4	$150000	0.572	$85800	$428400
5	$150000	0.497	$74550	$502950
6	$150000	0.432	$64800	$567750
7	$150000	0.376	$56400	$624150
8	$150000	0.327	$49050	$673200
9	$150000	0.284	$42600	$715800
10	$150000	0.247	$37050	$752850

11	$150000	0.215	$32250	$785100
12	$150000	0.187	$28050	$813150

therefore,

discounted payback period = 11 + ($800000 - $785100)/($813150 - $785100)

= 11 + ($14900/$28050)

= 11.53 years