Question
Walton Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an
Walton 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. Walton would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow Year Year 1 Year 1 Nature of Item Cash Inflow Purchase price Cash Outflow $96,200 Revenue $39,000 Year 2 Revenue 39,000 Year 3 Revenue 28,000 Year 3 Hajor overhaul 9,800 Year 4 Year 5 Year 5 Revenue 25,000 Revenue 23,000 Balvage value 8.600 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) b. Payback period (average cash flows) years years
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