Camptown Togs, Inc., a children's clothing manufacturer, has always found payroll processing to be costly because it must be done by a clerk. The number of piece-goods coupons received by each employee is collected and the types of tasks performed by each employee are calculated. Not long ago, an industrial engineer designed a system that partially automates the process by means of a scanner that reads the piece-goods coupons. Management is enthusiastic about this system, because it utilizes some personal computer systems that were purchased recently. It is expected that this new automated system will save $41,000 per year in labor. The new system will cost about $35,000 to build and test prior to operation. It is expected that operating costs, including income taxes, will be about $4,500 per year. The system will have a five-year useful life. The expected net salvage value of the system is estimated to be $3,500. Assume that the cash flows occur continuously throughout the year. (a) How long does it take to recover the investment? The payback period is 0.96 years. (Round to two decimal places.) (b) If the firm's interest rate is 13% after taxes, what would be the discounted payback period for this project? The discounted payback period would be years. (Round to two decimal places.)
Camptown Togs, Inc., a children's clothing manufacturer, has always found payroll processing to be costly because it must be done by a clerk. The number of piece-goods coupons received by each employee is collected and the types of tasks performed by each employee are calculated. Not long ago, an industrial engineer designed a system that partially automates the process by means of a scanner that reads the piece-goods coupons. Management is enthusiastic about this system, because it utilizes some personal computer systems that were purchased recently. It is expected that this new automated system will save $41,000 per year in labor. The new system will cost about $35,000 to build and test prior to operation. It is expected that operating costs, including income taxes, will be about $4,500 per year. The system will have a five-year useful life. The expected net salvage value of the system is estimated to be $3,500. Assume that the cash flows occur continuously throughout the year. (a) How long does it take to recover the investment? The payback period is 0.96 years. (Round to two decimal places.) (b) If the firm's interest rate is 13% after taxes, what would be the discounted payback period for this project? The discounted payback period would be years. (Round to two decimal places.)
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
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Camptown Togs, Inc., a children's clothing manufacturer, has always found payroll
processing to be costly because it must be done by a clerk. The number of piece-goods
coupons received by each employee is collected and the types of tasks performed by each
employee are calculated. Not long ago, an industrial engineer designed a system that
partially automates the process by means of a scanner that reads the piece-goods
coupons. Management is enthusiastic about this system, because it utilizes some personal
computer systems that were purchased recently. It is expected that this new automated
system will save $41,000 per year in labor. The new system will cost about $35,000 to
build and test prior to operation. It is expected that operating costs, including
income taxes, will be about $4,500 per year. The system will have a five-year useful life.
The expected net salvage value of the system is estimated to be $3,500. Assume that the
cash flows occur continuously throughout the year.
(a) How long does it take to recover the investment?
The payback period is 0.96 years. (Round to two decimal places.)
(b) If the firm's interest rate is 13% after taxes, what would be the discounted payback
period for this project?
The discounted payback period would be
years. (Round to two decimal places.)
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