Heels, a shoe manufacturer, is evaluating the costs and benefits of new equipment that would custom fit each pair of athletic shoes. The customer would have his or her foot scanned by digital computer equipment; this information would be used to cut the raw materials to provide the customer a perfect fit. The new equipment costs $90,000 and is expected to generate an additional $35,000 in cash flows for five years. A bank will make a $90,000 loan to the company at a 10% interest rate for this equipments purchase and compute the recovery time for both the payback period and break-even time.

Payback Period Break even time Compute the recovery time for the payback period. Payback Period Choose Numerator: Payback Period Cost of investment $ Choose Denominator: Annual net cash flow 45.000 X Payback period 2.80 years 117.000 = Payback Pesiad Break even time >