High Flying Company has an opportunity to make an investment that will yield $1,

Question

High Flying Company has an opportunity to make an investment that will yield $1,000 net cash inflow per year for the next 10 years. The investment will cost $6,000 and will have no salvage value. After cost reductions and depreciation related to the new investment, the future average annual net income will increase $800. Calculate the payback period. High Flying Company has an opportunity to make an investment that will yield $1,000 net cash inflow per year for the next 10 years. The investment will cost $6,000 and will have no salvage value.

Explanation / Answer

Answer:

Question 1:

Payback period will be in the 4th year because the net income is 1800 and the net expenses is 6000.

Answer 2 :

Therefore the net present value at 10% discount rate is 144

Thank You

Year cashflow Payback period 0 -6000 1 1000 2 1800 3 2600 4 3400 In this year 5 4200 6 5000 7 5800 8 6600 9 7400 10 8200 salavage value 0

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