he Novak Company is planning to purchase $502,100 of equipment with an estimated seven-year life and no estimated salvage value. The company has projected the following annual cash flows for the investment. Year Projected Cash Flows 1 $193,500 2 141,500 3 94,500 4 79,200 5 79,200 6 45,000 7 45,000 Total $677,900 (a) Calculate the payback period for the proposed equipment purchase. Assume that all cash flows occur evenly throughout the year. Payback period years and months. (b) If Novak requires a payback period of three years or less, should the company make this investment? The company should notshould make this investment.
he Novak Company is planning to purchase $502,100 of equipment with an estimated seven-year life and no estimated salvage value. The company has projected the following annual cash flows for the investment. Year Projected Cash Flows 1 $193,500 2 141,500 3 94,500 4 79,200 5 79,200 6 45,000 7 45,000 Total $677,900 (a) Calculate the payback period for the proposed equipment purchase. Assume that all cash flows occur evenly throughout the year. Payback period years and months. (b) If Novak requires a payback period of three years or less, should the company make this investment? The company should notshould make this investment.
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 1PA: Your company is planning to purchase a new log splitter for is lawn and garden business. The new...
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he Novak Company is planning to purchase $502,100 of equipment with an estimated seven-year life and no estimated salvage value. The company has projected the following annual
| Year | Projected Cash Flows | |||
| 1 | $193,500 | |||
| 2 | 141,500 | |||
| 3 | 94,500 | |||
| 4 | 79,200 | |||
| 5 | 79,200 | |||
| 6 | 45,000 | |||
| 7 | 45,000 | |||
| Total | $677,900 |
(a) Calculate the payback period for the proposed equipment purchase. Assume that all cash flows occur evenly throughout the year.
| Payback period |
|
(b) If Novak requires a payback period of three years or less, should the company make this investment?
| The company
should notshould
|
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