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Barker Production Company is considering the purchase of a flexible manufacturing system. The annual cash benefits/sav Decreased waste $ 75,000 Increased quality 100.000 Decrease in operating costs 62,500 Increase in on-time deliveries 12.500 The system will cost S750,000 and will last ten years. The company's cost of capital is 10%. What is the payback period for the flexible manufacturing system? What is the NPV for the flexible manufacturing system?

Barker Production Company is considering the purchase of a flexible manufacturing system. The annual cash benefits/sav Decreased waste $ 75,000 Increased quality 100.000 Decrease in operating costs 62,500 Increase in on-time deliveries 12.500 The system will cost S750,000 and will last ten years. The company's cost of capital is 10%. What is the payback period for the flexible manufacturing system? What is the NPV for the flexible manufacturing system?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Barker Production Company is considering the purchase of a flexible manufacturing system. The annual cash benefits/sav
Decreased waste
$ 75,000
Increased quality
100.000
Decrease in operating costs
62,500
Increase in on-time deliveries
12.500
The system will cost S750,000 and will last ten years. The company's cost of capital is 10%.

What is the payback period for the flexible manufacturing system?
What is the NPV for the flexible manufacturing system?

Expert Solution
Step 1: Formula for computation of payback period and NPV

P a y b a c k space p e r i o d equals I n i t i a l space I n v e s t m e n t divided by A n n u a l space c a s h space i n f l o w s.

N P V equals left square bracket left parenthesis A n n u a l space c a s h space i n f l o w s cross times P V A F left parenthesis r a t e comma y r s right parenthesis right square bracket minus I n i t i a l space I n v e s t m e n t.


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