Question

The management of Zesty Corporation is considering the purchase of a new machine costing $400,000. The company s desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability in this situation: The cash payback period for this investment is:______
a. 4 years
b. 5 years
c. 2 years
d. 3 years

Answer 1

Answer:

d. 3 years

Explanation:

Missing question: 'Year Income from Operations Net Cash Flow. 1 $100,000 $180,000, 2 40,000 120,000, 3 20,000 100,000, 4 10,000 90,000, 5 10,000 90,000"

Year   Income from  Net cash    Investment   Unrecovered Investment

           Operations     Flow                                at the end of year

0                                                      400,000            400,000

1           100,000        180,000                                   220,000

2          40,000          120,000                                  100,000

3          20,000          100,000                                         -  

4          10,000           90,000                                   (90,000)

5          10,000           90,000                                   (180,000)

Entire investment is recovered by the end of 3 year. So, pay back period is 3 Years.