Asked by
Connor Elgersma
on Dec 17, 2024
Verified
A company is considering the purchase of a new piece of equipment for $90,000. Predicted annual net cash inflows from the investment are $36,000 (Year 1), $30,000 (Year 2), $18,000 (Year 3), $12,000 (Year 4), and $6,000 (Year 5). The average operating income generated from the investment over its 5-year life is $20,400. The cash payback period is 3.5 years.
Net Cash Inflows
The total amount of money received from operations, investments, and financing activities, minus the amount of money spent.
Operating Income
The profit realized from a company's everyday core business operations, excluding deductions of interest and taxes.
Cash Payback Period
The duration needed for an investment to generate cash flows sufficient to recover the initial cost of the investment.
- Gain insight into the notion of the cash payback period and understand the approach to calculate it.
- Compute the anticipated mean rate of return for investments in capital.
Verified Answer
SJ
Learning Objectives
- Gain insight into the notion of the cash payback period and understand the approach to calculate it.
- Compute the anticipated mean rate of return for investments in capital.