Question

Turner Hardware is adding a new product line that will require an investment of $1,418,000. Managers estimate that this investment will have a 10-year life and generate net cash inflows of $335,000 the first year, $295,000 the second year, and $260,000 each year thereafter for eight years. The investment has no residual value. Compute the payback period. First enter the formula, then calculate the payback period. (Round your answer to two decimal places.) Full years + C Amount to complete recovery in next year I Projected cash inflow in next year ) = ])= Payback years years

Answer 1

- Payback period Given cash out flow = $1418000 • Cash inflows for 8 years are 335000, 295000, 260000 260000, 260000, --- 260,000 yen 1 Years Payback period = full year + Amount to complete recovery in next year . Projected cash flow in next year = 5.+ 8000 260000 Payback period = 5+0.03 = 5.03 years.

Accounting rate of Reform (ARR): . Given cash oulflow = $1540,000 Cash inflows for 8 years are 325000, 280.000, 225000, 225000 ------ 225000 Year 8 Year! 6 Average cash inflow = 325000 + 230000 +(6x225000) . = 1955000 204375 3. ARR = Average annual Operating income Initial investment = 244375 1540000 = 0.15868 ARR = 15.876%