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

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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Rooney 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. Rooney would sell it at the end of the fifth year of its useful life. The expected cash inflows and
outflows follow:
follow
Year
Year 1
Year 1
Year 2
Year 3
Year 3
Major overhaul
Year 4
Revenue
Year 5
Revenue
Year 5 Salvage value
Nature of Item
Purchase price
Revenue
Revenue
Revenue
Cash Inflow
$36,500
36,500
25,500
22,500
20,500
8,100
Cash Outflow
$89,200
a. Payback period (accumulated cash flows)
b. Payback period (average cash flows)
Required
a.&b. Determine the payback period using the accumulated and average cash flows approaches.
Note: Round your answers to 1 decimal place.
9,300
years
years
Transcribed Image Text:Rooney 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. Rooney would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow: follow Year Year 1 Year 1 Year 2 Year 3 Year 3 Major overhaul Year 4 Revenue Year 5 Revenue Year 5 Salvage value Nature of Item Purchase price Revenue Revenue Revenue Cash Inflow $36,500 36,500 25,500 22,500 20,500 8,100 Cash Outflow $89,200 a. Payback period (accumulated cash flows) b. Payback period (average cash flows) Required a.&b. Determine the payback period using the accumulated and average cash flows approaches. Note: Round your answers to 1 decimal place. 9,300 years years
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