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Wildhorse Solutions, Inc., has just invested $4,080,100 in new equipment. The firm uses a payback period...

Wildhorse Solutions, Inc., has just invested $4,080,100 in new equipment. The firm uses a payback period criteria of rejecting any project that takes more than four years to recover its costs. Management anticipates cash flows of $624,500, $705,700, $904,500, $1,436,300, $2,102,500, and $2,549,500 over the next six years. (Round answer to 2 decimal places, e.g. 15.25.)

What is the payback period of this investment?

Should Wildhorse Solutions, Inc. go ahead with this project?

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Answer #1

Ans Payback period = 4.19 years

Since payback period is more than 4 years the project must not be accepted.

Year Cash Flow Cumulative Cash Flow
0 -4080100 -4080100
1 624500 -3455600
2 705700 -2749900
3 904500 -1845400
4 1436300 -409100
5 2102500 1693400
6 2549500 4242900
TOTAL 4242900
Payback Period = 4 YEARS + 409100/2102500
4.19 YEARS
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