Problem 10-4A Sell or process LO A1

Harold Manufacturing produces denim clothing. This year, it produced 5,120 denim jackets at a manufacturing cost of $42.00 each. These jackets were damaged in the warehouse during storage. Management investigated the matter and identified three alternatives for these jackets.

Jackets can be sold to a secondhand clothing shop for $8.00 each.

Jackets can be disassembled at a cost of $32,100 and sold to a recycler for $11.00 each.

Jackets can be reworked and turned into good jackets. However, with the damage, management estimates it will be able to assemble the good parts of the 5,120 jackets into only 3,060 jackets. The remaining pieces of fabric will be discarded. The cost of reworking the jackets will be $102,500, but the jackets can then be sold for their regular price of $45.00 each.

Exercise 11-1 Payback period computation; uneven cash flows LO P1

Beyer Company is considering the purchase of an asset for $190,000. It is expected to produce the following net cash flows. The cash flows occur evenly within each year.

	Year 1				Year 2				Year 3				Year 4				Year 5				Total
Net cash flows		$	50,000			$	31,000			$	60,000			$	140,000			$	30,000			$	311,000

Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your Payback Period answer to 2 decimal place.)