Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A company is adding an additional machine to increase its operating capacity. The installed cost of this machine is $1,200,000. As utilization of the new

A company is adding an additional machine to increase its operating capacity. The installed cost of this machine is $1,200,000. As utilization of the new machine ramps up, the company will see changes in revenues, operating costs, taxes, accounts receivable, inventories, accounts payable and other elements of net working capital. Free cash flows expected from adding this machine are forecasted as shown below. At the end of the final year shown, the company plans to sell the machine, netting $19,000 after tax. The company has a 10% cost of capital (i.e., the required rate of return is 10%). What is the payback period of this proposal (measured in years)?

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Initial Investment 300,000 325,000 350,000 375,000 400,000

Enter your answer as a number rounded to four decimal places. For example, if your answer is 90.1234 years, enter 90.1234

A company is adding an additional machine to increase its operating capacity. The installed cost of this machine is $1,200,000. As utilization of the new machine ramps up, the company will see changes in revenues, operating costs, taxes, accounts receivable, inventories, accounts payable and other elements of net working capital. Free cash flows expected from adding this machine are forecasted as shown below. At the end of the final year shown, the company plans to sell the machine, netting $19,000 after tax. The company has a 10% cost of capital (i.e., the required rate of return is 10%). What is the payback period of this proposal (measured in years)?

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Initial Investment 300,000 325,000 350,000 375,000 400,000

Enter your answer as a number rounded to four decimal places. For example, if your answer is 90.1234 years, enter 90.1234

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial management theory and practice

Authors: Eugene F. Brigham and Michael C. Ehrhardt

13th edition

1439078106, 111197375X, 9781439078105, 9781111973759, 978-1439078099

More Books

Students also viewed these Finance questions