You have the opportunity to expand your business by purchasing new equipment for $194,000. You expect to incur fixed costs of 595,000 per year to use this new equipment, and you expect to incur variable costs in the amount of approximately 10% of annual revenues. Required RE Click the icon to see the Worked Solution. Required fenues every year. (Round your answer to two decimal places.) 1. Calculate the payback period for this investment assuming you will generate $144,000 in cash revenues every year. 2. Assume you expect the following revenue stream for this investment: $ 91,000 Year 4 $ 154,000 $ 138,000 Year 1: Year 2 Year 3: Year 7 Year 8 Year 5 126.000 113,000 132,000 171,000 177,000 Year 6 Year 9: 81,000 Based on this estimated revenue stream, what is the payback period for this investment? Print Done Worked Solution Requirement 1 X = Cash revenue $ 144,000 Variable costs percentage 10% = Variable costs $ 14.400 Annual revenue $ 144.000 Annual fixed costs $ 95,000 14,400 109,400 Annual variable costs Net annual cash inflow 34,600 - Net annual cash inflow = Equipment cost $ 194,000 Payback period 5.61 $ 34.600 = Requirement 2 Variable costs, Cash revenue Variable costs percentage 10% = year 1 9.100 91,000 $ Cash revenue, year 1 $ 91,000 Variable costs, year 1 $ 9,100 Fixed costs, year 1 $ 95,000 Net cash flow (outflow), year 1 = $ (13,100) Year 1 Revenue (1) Fixed Costs (2) $ 91,000 $ 95,000 $ 113,000 95,000 132,000 95,000 Net Cash Inflow (4) = Cumulative Variable Costs (3) (1)-(2) - (3) Amounts 9,100 $ (13,100 $ (13,100) 11,300 6,700 (6,400) 13,200 23,800 17,400 2 3 GA 91,000 9,100 - $ 69 95,000 $ (13,100) Year 1 2 3 4 Revenue (1) Fixed Costs (2) $ 91,000 $ 95,000 $ 113,000 95,000 132,000 95,000 154,000 95,000 171,000 95,000 177,000 95,000 138,000 95,000 126,000 95,000 81,000 95,000 Net Cash Inflow (4) = Cumulative Variable Costs (3) (1) - (2) - (3) Amounts 9,100 $ (13,100) $ (13,100) 11,300 6,700 (6,400) 13,200 23,800 17,400 15,400 43,600 61,000 17,100 58,900 119,900 17,700 64,300 184,200 13,800 29,200 213,400 12,600 18,400 231,800 8,100 (22.100) 209,700 5 6 7 8 9 Number of years 6 Cumulative at end of year 6 184,200 + (Cost of equipment ($ 194,000 ) Net cash inflow year 7 29,200 Payback period 6.34 6 +