Please HELP.. Please show work to get credit (Ignore income taxes in this proble

Question

Please HELP.. Please show work to get credit

(Ignore income taxes in this problem.) Gillaspie, Inc., is considering the purchase of a machine that would cost $300,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $51,000. The machine would reduce labor and other costs by $86,000 per year. Additional working capital of $10,000 would be needed immediately. All of this working capital would be recovered at the end of the life of the machine. The company requires a minimum pretax return of 13% on all investment projects.

The combined present value of the working capital needed at the beginning of the project and the working capital released at the end of the project is closest to:

2.41 years 0.25 years 10 years 4 years (Ignore income taxes in this problem.) Oriental Company has gathered the following data on a proposed investment project: The company uses straight-line depreciation on all equipment. The payback period for the investment would be closest to: (Ignore income taxes in this problem.) Gillaspie, Inc., is considering the purchase of a machine that would cost $300,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $51,000. The machine would reduce labor and other costs by $86,000 per year. Additional working capital of $10,000 would be needed immediately. All of this working capital would be recovered at the end of the life of the machine. The company requires a minimum pretax return of 13% on all investment projects. The combined present value of the working capital needed at the beginning of the project and the working capital released at the end of the project is closest to:

Explanation / Answer

A
The payback period is the time taken by the revenues to equal the investment.
Thus,
50000*n = 200000
n = 4 years

B
The P.V. of working capital
= -10000*(1+i)^0 + 10000*(1+i)^5 , where i=13%
= -$4570

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