Wood Products Company would like to purchase a computerized wood lathe for \($100,000.\) The machine is expected to have a life of five years, and a salvage value of \($5,000.\) Annual maintenance costs will total \($20,000.\) Annual net cash receipts resulting from this machine are predicted to be \($45,000.\) The company’s required rate of return is 15 percent (data are the same as in the previous exercise). Determine the payback period for this investment using the format shown in Table 8.6. 

Table 8.6

Transcribed Image Text:

Calculating the Payback Period for Jackson's Quality Copies Unrecovered Investment (Cash Outflow) Cash Inflow Investment Balance Year 0 $(50,000) $(50,000)* Year 1 $10,000 (40,000)** Year 2 10,000 (30,000) Year 3 10,000 (20,000) Year 4 10,000 (10,000) Year 5 10,000 0 Year 6 10,000 0 15,000 0 Year 7 *S(50,000)=$(50,000) initial investment. **S(40,000)=$(50,000) unrecovered investment balance + $10,000 year 1 cash inflow. $(30,000) $(40,000) unrecovered investment balance at end of year 1 + $10,000 year 2 cash inflow.