Set the entire question up in an Excel spreadsheet and answer all the questions clearly marked in your spreadsheet.

You are considering purchasing a machine (use your imagination) that will initially cost $205,000.00. The machine is expected to last 7 years, and you project that you can sell the worn out machine at the end of 7 years for $55,000.00

Annual operating cash inflows and outflows are projected as follows, and are assumed to occur at the end of each year: Both of years 1 and 2, cash inflow $66,000.00, cash outflow expenses $24,000.00; both of years 3 and 4, cash inflow $72,000.00, cash outflow expenses $27,000.00. In year 5 you have to shut down and rebuild the machine so cash inflows are only $35,000.00 and cash outflows are $44,000.00. In year 6 cash inflow is $65,000.00, and cash outflow expenses are $39,000.00. Finally, in year 7 cash operating inflow is $66,000.00 and cash operating expenses are $34,000.00.

1. What is the calculated payback period for this proposed investment?

1.b. If the required payback period for your firm is 6 years, would you purchase this machine? Why or why not?