Question

Answer each of the following questions, which are independent from each other.

Speedy Delivery Company is considering two different machines for use in its sorting facility and the company's management put together the following cash flow estimates: Model DQT Model MK6 Purchase cost 18,000 26,000 Estimated net cash inflows: Year 1 9,000 12,000 Year 2 7,000 10,000 Year 3 5,000 9,000 Year 4 4,000 6,000

For all time value of money calculations, use time value of money factors with at least 4 decimal places and do not round intermediate calculations; instead, only round your final answer to the nearest whole number.

1. What is the cash payback period on Model DQT (rounded to two decimal places)?

2. What is the cash payback period on Model MK6 (rounded to two decimal places)?

3. What is the net present value of Model DQT?

4. What is the net present value of Model MK6?

5. You recently purchased a new home for $275,000 by agreeing to make annual payments for 15 years; if the interest rate on your loan is 4 percent, what is the total amount of interest you will pay over the life of the loan?

Answer 1

Requirement 1 & 2
Year	Model DQT		Model MK6
	Cash flows	Cumulative cash flows	Cash flows	Cumulative cash flows
0	-18000	-18000	-26000	-26000
1	9000	-9000	12000	-14000
2	7000	-2000	10000	-4000
3	5000	3000	9000	5000
4	4000	7000	6000	11000
Model DQT Pay back period = 2+ (2,000/5,000) = 2.40 years
Model MK6 Pay back period = 2 + (4,000/9,000) = 2.44 years
Requirement 3 & 4
Year	Discount Factor @10%	Model DQT		Model MK6
		Cash flows	Discounted cash flows	Cash flows	Discounted cash flows
0	1.000000	-18000	-18000.00	-26000	-26000.00
1	0.9091	9000	8181.90	12000	10909.20
2	0.8264	7000	5784.80	10000	8264.00
3	0.7513	5000	3756.50	9000	6761.70
	0.683	4000	2732.00	6000	4098.00
NPV			2455.20		4032.90
Note: discount rate not considered so, 10% is considered for reference