Answer:
Payback is 7.3 years
NPV $3,099
Step-by-step explanation:
The formula for payback period period=initial investment/annual cost savings
The initial investment is the amount of cash outflow that would be required to purchase the new delivery truck,which is $54,750,while on the other hand the annual cost savings is $7,500
cash payback period=$54,750/$7,500=7.3 years
Ordinarily,the expected payback is 1/2 of 8 years=4 years.
The net present is the present worth of the future cost savings as well as the scrap value of the truck in year 8,calculated by multiplying the cash flows with the discounted factors for relevant years as below:
Years cash flow DCF at 8% Present values
0 -$54,750 1 -$54,750
1-7 years $7500 5.2064 $39,048
8 $34,800 0.54027 $18,801
NPV $3,099
Note that the $34,800 =$7500+$27300
The year 1-7 factor is annuity factor for 8% 7 years
