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Cash Payback Period, Net Present Value Analysis, and Qualitative Considerations The plant manager of Shenzhen Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $200,000. The manager believes that the new investment will result in direct labor savings of $50,000 per year for 10 years. Present Value of an Annuity of $1 at Compound Interest Year 10% 12% 15% 20% 6% 0.943 0.909 0.893 0.870 1 1.833 1.736 1.690 1.626 2.487 2.283 2 3 4 5 6 7 8 9 10 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 6.145 3.170 3.791 4.355 4.868 5.335 4.968 4.487 5.759 5.328 4.772 5.650 5.019 1.528 2.402 2.106 3.037 2.589 3.605 3.353 2.991 4.111 3.785 3.326 4.564 4.160 3.605 3.837 Net present value 2.855 a. What is the payback period on this project? 4 ✓ years 0.833 4.031 4.192 b. What is the net present value, assuming a 12% rate of return? Use the table provided above. Round to the nearest whole dollar. 282,500 X

Cash Payback Period, Net Present Value Analysis, and Qualitative Considerations The plant manager of Shenzhen Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $200,000. The manager believes that the new investment will result in direct labor savings of $50,000 per year for 10 years. Present Value of an Annuity of $1 at Compound Interest Year 10% 12% 15% 20% 6% 0.943 0.909 0.893 0.870 1 1.833 1.736 1.690 1.626 2.487 2.283 2 3 4 5 6 7 8 9 10 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 6.145 3.170 3.791 4.355 4.868 5.335 4.968 4.487 5.759 5.328 4.772 5.650 5.019 1.528 2.402 2.106 3.037 2.589 3.605 3.353 2.991 4.111 3.785 3.326 4.564 4.160 3.605 3.837 Net present value 2.855 a. What is the payback period on this project? 4 ✓ years 0.833 4.031 4.192 b. What is the net present value, assuming a 12% rate of return? Use the table provided above. Round to the nearest whole dollar. 282,500 X

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Cash Payback Period, Net Present Value Analysis, and Qualitative Considerations The plant manager of Shenzhen Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $200,000. The manager believes that the new investment will result in direct labor savings of $50,000 per year for 10 years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.909 0.893 1 2 3 4 5 6 7 8 9 10 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 a. What is the payback period on this project? 4 ✔ years b. What is the net present value, assuming a 12% rate of return? Use the table provided above. Round to the nearest whole dollar. Net present value $282,500 X
Transcribed Image Text:Cash Payback Period, Net Present Value Analysis, and Qualitative Considerations The plant manager of Shenzhen Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $200,000. The manager believes that the new investment will result in direct labor savings of $50,000 per year for 10 years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.909 0.893 1 2 3 4 5 6 7 8 9 10 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 a. What is the payback period on this project? 4 ✔ years b. What is the net present value, assuming a 12% rate of return? Use the table provided above. Round to the nearest whole dollar. Net present value $282,500 X
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