1) You are considering buying a company for $547,000. If you expect the business to earn...
1) You are considering buying a company for $547,000. If you expect the business to earn $152,000 per year, how long is the conventional payback period? (in years, round to one decimal place) .
2)If you have equipment is not replaced but has on-going annual maintenance costing $71,000 indefinitely, what is the capitalized cost of that maintenance if your MARR is 8%?
Homework Answers
1) PAYBACK PERIOD = TOTAL OUTFLOW/ANNUAL CASH INFLOW
= $547000/$152000
= 3.6 years appx.
2) CAPITALIZED COST OF MAINTENANCE = ANNUAL MAINT. COST(indefinite)/MIN. ACCEPTABLE RATE OF RETURN
= $71000/.08
= $887,500
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