Buchan Enterprises is considering investing in a new machine. The machine will be purchased on 1 January in Year 1 at a cost of £50 000. It is estimated that it would last for 5 years, and it will then be sold at the end of the year for £2000 in cash. The respective net cash flows estimated to be received by the company as a result of purchasing the machine during each year of its life are as follows:

The company’s cost of capital is 12%.
Required:
Calculate

(a) the payback period for the project; and

(b) its discounted payback period.

Transcribed Image Text:

Year 12345 8000 16000 40000 (excluding the initial cost) 4 45000 35000 (exclusive of the project's sale proceeds)