Question

Landram Corporation is considering investing in specialized equipment conting $250,000. The equipment has a useful life of 5 vear and a residual value of $20,000. Depreciation is calculated using the straight-line method. The expected net cash inflows from the investment are Year 2 $ 60,000 $ 20,000 $110,000 $ 40,000 $ 25,000 $325.000 Total cash inflows Landrum Corporation's required rate of retum on investments is 14% What is the Payback period of the Investinent using accumulated cash flows Another Approach to Unequal Cash Flows Another approach is to calculate the average annual cash inflows to compute the payback period Lindrom Corporation is considering investing in specialized equipment conting $250,000. The equipament has a useful ise of years and a sidual value of $20.000 Depreciation is calculated using the straight-line method. The expected rettholows from the arvestment are $60.000 $90.000 $110.000 $40.000 $25.000 $325000 Total cash intlows Lendrum Corporation's requued rate of sum on investments is 149 Wat is the Parbuck Pestod of the Investment using average cash flows

Answer 1

Solution -

As per below computation we will receive $250000 just after 5 year.

Cash Inflow (In $) PV @14 % PV of cash flows Accumlated PV Cash flows 52620 Year 1 60000 0.877 52620 90000 2. 0.769 69210 121830 74140 3 110000 0.674 195970 40000 4. 0.592 23680 219650 243005 (Payback just after it) 45000 0.519 23355 So in the 5th year cash inflow would be $45000 because of the salavge value and the payback period will be after just after 5th year as per the Present value of accumalted cash flows and if we don't consider the PV then the payback period is 3 years