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Franklin Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Franklin would sell it at the end of the fifth year of its useful life. The expected cash inf

Franklin Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Franklin would sell it at the end of the fifth year of its useful life. The expected cash inf

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
Section: Chapter Questions
Problem 1PS
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Franklin Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Franklin would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow: \table[[Year,Nature of Item,Cash Inflow,Cash Outflow],[Year 1,Purchase price,,$86,800

Franklin Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation, Thereafter, it would be leased to the general public on demand. Franklin would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow: Year Year 1 Nature of Item Cash Inflow Cash Outflow Purchase price $86,800 Year 1 Revenue $33,500 Year 2 Revenue 33,500 Year 3 Revenue 28,500 Year 3 Major overhaul 8,700 Year 4 Revenue 19,500 Year 5 Year 5 Revenue 17,500 Salvage value 7,500 Required a.&b. Determine the payback period using the accumulated and average cash flows approaches. Note: Round your answers to 1 decimal place. a. Payback period (accumulated cash flows) b. Payback period (average cash flows) years years
Transcribed Image Text:Franklin Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation, Thereafter, it would be leased to the general public on demand. Franklin would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow: Year Year 1 Nature of Item Cash Inflow Cash Outflow Purchase price $86,800 Year 1 Revenue $33,500 Year 2 Revenue 33,500 Year 3 Revenue 28,500 Year 3 Major overhaul 8,700 Year 4 Revenue 19,500 Year 5 Year 5 Revenue 17,500 Salvage value 7,500 Required a.&b. Determine the payback period using the accumulated and average cash flows approaches. Note: Round your answers to 1 decimal place. a. Payback period (accumulated cash flows) b. Payback period (average cash flows) years years
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