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aniked [119]
3 years ago
14

Cash Payback Period, Net Present Value Analysis, and Qualitative Considerations The plant manager of Shenzhen Electronics Compan

y is considering the purchase of new automated assembly equipment. The new equipment will cost $1,400,000. The manager believes that the new investment will result in direct labor savings of $350,000 per year for 10 years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 a. What is the payback period on this project? 4 years b. What is the net present value, assuming a 10% rate of return? Use the table provided above. Round to the nearest whole dollar. Net present value
Business
1 answer:
Kay [80]3 years ago
5 0

Answer:

NPV = $750,598.49

Explanation:

Payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative cash flows

Payback period =  amount invested / cash flow = $1,400,000 / $350,000 = 4 years

Net present value is the present value of after tax cash flows from an investment less the amount invested.  

NPV can be calculated using a financial calculator  

Cash flow in year 0 =  $-1,400,000.

Cash flow each year from year 1 to 10 =  $350,000.

I = 10%

NPV = $750,598.49

To find the NPV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.  

3. Press compute  

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