Cornell Manufacturing Company is considering the following investment proposal:
ID: 2574043 • Letter: C
Question
Cornell Manufacturing Company is considering the following investment proposal:
Initial investment:
Depreciable assets (straight-line)
$48,000
Working capital
4,000
Operations (per year for 4 years):
Cash receipts
$30,000
Cash expenditures
17,000
Disinvestment:
Salvage value of equipment
$2,000
Recovery of working capital
4,000
The investment's payback period in years (rounded to two decimal points) is:
A.
1.50
B.
4.00
C.
4.67
D.
3.56
Dutch's Donut Shop is considering an investment of $72,000. Data related to the investment are as follows:
Year
Cash Inflows
1
$20,000
2
22,000
3
24,000
4
30,000
5
30,000
The investments payback period (rounded to two decimal points) is:
A.
2.33
B.
3.20
C.
3.25
D.
3.13
Initial investment:
Explanation / Answer
1 Annual cash flows = 30000-17000 = 13000 Investment's payback period = 52000/13000 = 4.00 years 2 Year Cash inflows Accumulated cash flows 0 -72000 -72000 1 20000 -52000 2 22000 -30000 3 24000 -6000 4 30000 24000 5 30000 54000 Payback period = 3+(6000/30000) = 3.20 years