Blue Spruce Inc. wants to replace its current equipment with new high-tech equipment. The existing equipment was purchased 5 years ago at a cost of $129,000. At that time, the equipment had an expected life of 10 years, with no expected salvage value. The equipment is being depreciated on a straight-line basis. Currently, the market value of the old equipment is $40,100. The new equipment can be bought for $175,190, including installation. Over its 10-year life, it will reduce operating expenses from $192,800 to $145,500 for the first six years, and from $200,500 to $194,100 for the last four years. Net working capital requirements will also increase by $21,000 at the time of replacement. It is estimated that the company can sell the new equipment for $24,500 at the end of its life. Since the new equipments cash flows are relatively certain, the projects cost of capital is set at 10%, compared with 15% for an average-risk project. The firms maximum acceptable payback period is 5 years. Click here to view the factor table.

(a)

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Calculate the initial investment amount.

Initial investment

$enter the initial investment amount in dollars

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(b)

Calculate the projects cash payback period. (Round answer to 2 decimal places, e.g. 15.25.)

Cash payback period

enter the cash payback period in years rounded to 2 decimal places

years