Question
Floyd Clymer is the CFO of Bonavista Mustang, a manufacturer of parts for classicautomobiles. Floyd is considering the purchase of a two-ton press which will
Floyd Clymer is the CFO of Bonavista Mustang, a manufacturer of parts for classicautomobiles. Floyd is considering the purchase of a two-ton press which will allow the firstamp out auto fenders. The equipment costs $250,000. The project is expected to produafter-tax cash flows of $60,000 the first year, and increase by $10,000 annually; the after-cash flow in year 5 will reach $100,000. Liquidation of theequipment will net the firm $10,000 in cash at the end of five years, making the totalcash flow in year five $110,000.Assume the required return is 15%. What is the project's discounted payback period?A) two yearsB) three yearsC) four yearsD) five yearsE) Longer than the project's life.
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