example, & P21-38 (similar to) Question Help * Sparow Laundromat is trying to en
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example,
& P21-38 (similar to) Question Help * Sparow Laundromat is trying to enhance the services it provides to customers, mostly college students. I is looking into the purchase of new high-efficiency washing machines that will allow for the laundry's status to be checked via smartphone. Sparrow estimates the cost of the new equipment at $191,000. The equipment has a useful life of 9 years. Sparrow expects cash fixed costs of $80,000 per year to operate the new machines, as well as cash variable costs in the amount of 5% of revenues. Sparrow evaluates investments using a cost of capital of 10%. (Click the icon to view the Future Value of$1 factors. (Click the icon to view the Future Value of Annuity of $1 factors.) (Click the icon to view the Present Value of $1 factors Click the icon to view the Present Value of Annuity of $1 factors. Read the requirements Requirement 1. Calculate the payback period and the discounted payback period for this investment, assuming Sparrow expects to generate $150,000 in incremental revenues every year from the new machines. (Round your answer to two decimal places.) The payback period for the investment assuming uniform net cash inflows is years Requirements 1. Calculate the payback period and the discounted payback period for this investment, asming Sparrow expects to generate 150,000 in incremental revenues every year from the new machines. Assume instead that Sparrow expects an uneven stream of incremental cash revenues from installing the new washing machines. Based on this estimated revenue stream, what are the payback and discounted payback periods for the 2. investment? Year Projected Revenue S 95,000 $ 95,000 S 150,000 $120,000 190,000 $180,000 $150,000 $120,000 $195,000 Print DoneExplanation / Answer
Answer 1. Payback period = Intial Investment Amount Invested / Equal Annual Incremental Cash Calculation of Cash Inflow: Incremental Revenue 150,000 Less: Variable Costs - $150,000 X 5% 7,500 Less: Fixed Costs 80,000 Cash Inflow per annum 62,500 Payback period = $191,000 / $62,500 Payback period = 3.06 Years Discounted Payback period Year Intial Invetments Cash Inflow Discount Factor - 10% Discounted Net Cash Inflow Accumulated Net Cash Inflow 0 191,000 - - 1 62,500 0.909 56,813 56,813 2 62,500 0.826 51,625 108,438 3 62,500 0.751 46,938 155,375 4 62,500 0.683 42,688 198,063 5 62,500 0.621 38,813 236,875 6 62,500 0.564 35,250 272,125 7 62,500 0.513 32,063 304,188 8 62,500 0.467 29,188 333,375 9 62,500 0.424 26,500 359,875 Discounted Cash payback period = 3 Years + (35,625 / 42,688 x 1 Year) Discounted Cash payback period = 3 Years + 0.83 Discounted Cash payback period = 3.83 Years (Approx.) Answer 2-a. Year Revenue Variable Cost - 5% Fixed Costs Cash Inflow Accumulated Net Cash Inflow 1 95,000 4,750 80,000 10,250 10,250 2 95,000 4,750 80,000 10,250 20,500 3 150,000 7,500 80,000 62,500 83,000 4 120,000 6,000 80,000 34,000 117,000 5 190,000 9,500 80,000 100,500 217,500 6 180,000 9,000 80,000 91,000 308,500 7 150,000 7,500 80,000 62,500 371,000 8 120,000 6,000 80,000 34,000 405,000 9 195,000 9,750 80,000 105,250 510,250 Cash payback period = 4 Years + (74,000 / 100,500 x 1 Year) Cash payback period = 4 Years + 0.74 Cash payback period = 4.74 Years Discounted Payback period Year Intial Invetments Cash Inflow Discount Factor - 10% Discounted Net Cash Inflow Accumulated Net Cash Inflow 0 191,000 - - 1 10,250 0.909 9,317 9,317 2 10,250 0.826 8,467 17,784 3 62,500 0.751 46,938 64,721 4 34,000 0.683 23,222 87,943 5 100,500 0.621 62,411 150,354 6 91,000 0.564 51,324 201,678 7 62,500 0.513 32,063 233,740 8 34,000 0.467 15,878 249,618 9 105,250 0.424 44,626 294,244 Discounted Cash payback period = 5 Years + (40,646 / 51,324 x 1 Year) Discounted Cash payback period = 5 Years + 0.79 Discounted Cash payback period = 5.79 Years (Approx.)
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