v2.cengagenow.comm The management of Zesty Corporation is considering the purcha

ID: 2432937 • Letter: V

Question

v2.cengagenow.comm 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 Years 1 through 5 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 Income from Operations $100,000 40,000 20,000 10,000 10,000 Net Cash Flow $180,000 120,000 100,000 90,000 The cash payback period for this investment is Oa. 3 years Ob. 4 years Oc. 5 years Od. 2 years

Explanation / Answer

The correct option is (a)=3 years i.e the cash payback period for this investment is 3 years.(see working note)

Working Note:

Years

Cash Flow

Cummulative cash flow

($ 4,00,000)

( $ 4,00,000)

$ 180000

($ 2,20,000)

$ 120000

($ 1,00,000)

$ 100000

$ 90000

$180000

Payback period=3 years.