Question
Thornton Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual
Thornton Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Thornton would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow:
Nature of Item: Cash Inflow Cash Outflow
Year 1 Purchase Price $93,400
Year 1 Revenue $38,000
Year 2 Revenue $38,000
Year 3 Revenue $27,000
Year 3 Major Overhaul $9,600
Year 4 Revenue $24,000
Year 5 Revenue $22,000
Year 5 Salvage Value $8,400
Required
- a.&b.Determine the payback period using the accumulated and average cash flows approaches.(Round your answers to 1 decimal place.)
a. Payback period (accumulated cash flows) ______ years
b. Payback period (average cash flows) _______ years
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