Cardinal Laundromat is trying to enhance the services it provides to customers, mostly college students. It is

Question:

Cardinal Laundromat is trying to enhance the services it provides to customers, mostly college students. It is looking into the purchase of new high-efficiency washing machines that will allow for the laundryâ€™s status to be checked via smartphone. Cardinal estimates the cost of the new equipment at $ 186,000. The equipment has a useful life of 9 years. Cardinal expects cash fixed costs of $ 82,000 per year to operate the new machines, as well as cash variable costs in the amount of 5% of revenues. Cardinal evaluates investments using a cost of capital of 6%.

Required

1. Calculate the payback period and the discounted payback period for this investment, assuming Cardinal expects to generate $ 180,000 in revenues every year from the new machines.

2. Assume instead that Cardinal expects the following uneven stream of cash revenues from installing the new washing machines:

Based on this estimated revenue stream, what are the payback and discounted payback periods for the investment?

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...