Question
Salsa Company is considering an investment in technology to improve its operations. The investment costs $257,000 and will yield the following net cash flows. Management
Salsa Company is considering an investment in technology to improve its operations. The investment costs $257,000 and will yield the following net cash flows. Management requires a 8% return on investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
Year | Net cash Flow |
---|---|
1 | $ 48,500 |
2 | 53,000 |
3 | 76,100 |
4 | 94,000 |
5 | 125,400 |
Required: 1. Determine the payback period for this investment. 2. Determine the break-even time for this investment. 3. Determine the net present value for this investment. 4. Should management invest in this project based on net present value?
3. Determine the net present value for this investment. 4. Should management invest in this project based on net present value?
Year Net Cash Flows Cumulative Net Cash Flows Initial investment $ (257,000) 48,500 Year 1 Year 2 53,000 Year 3 76,100 Year 4 94,000 Year 5 125,400 Payback period = = Year Net Cash Flows Present Value of Present Value of Net 1 at 8% Cash Flows per Year Cumulative Present Value of Net Cash Flows Initial investment $ (257,000) Year 1 Year 2 Year 3 0 Year 4 Ooo Year 5 Break-even time = yearsStep by Step Solution
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