Melton Company is purchasing a forklift to use in its heavy equip rental busines

Question

Melton Company is purchasing a forklift to use in its heavy equip rental business. Forklift leased on an annual basis during the first two years then to the general public on demand. Melton will sell it at the end of the fifth year. The expected cash follow and outflow follow, a determine the payback period using the accumulated cash flow approach. 13A. PAYBACK PERIOD WITH UNEVEN CASH FLOW YEAR NATURE OF ITEM CASH INFLOW CASH OUTFLOW $72,000 2012 PURCHASE PRICE 2012 REVENUE 30,000 2013 REVENUE 30000 2014 REVENUE 21000 2014 MAJOR OVERHAUL 9000 2015 REVENUE 18000 2016 REVENUE 14400 2016 SALVAGE VALUE 96000

Explanation / Answer

Accumulated cash flow After 2012 the -72000 + 30000 = -42000

Accumulated Cash flow After 2013 is -42000 + 30000 = -12000

Accumulated Cash flow After 2014 is -12000 + 21000 - 9000 = 0

Accumulated Cash flow After 2015 is 18000

Accumulated Cash flow After 2016 is 18000 + 14400 + 9600 = 42000

As the accumulated cash flow becomes 0 in 2014 according to accumulated cash flow approach the payback period is 3 years ( 2012, 2013 and 2014 )

Hence 3 years

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---