Gadubhai Rooney Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forkliftwould be leased on an annual basis during its first two years of operation. Thereafter, it would be leased to the generalpublic on demand. Rooney would sell it at the end of the fifth year of its useful life. The expected cash inflows andoutflows follow:followYearYear 1Year 1Year 2Year 3Year 3Major overhaulYear 4RevenueYear 5RevenueYear 5 Salvage valueNature of ItemPurchase priceRevenueRevenueRevenueCash Inflow$36,50036,50025,50022,50020,5008,100Cash Outflow$89,200a. Payback period (accumulated cash flows)b. Payback period (average cash flows)Requireda.&b. Determine the payback period using the accumulated and average cash flows approaches.Note: Round your answers to 1 decimal place.9,300yearsyears

The payback period indicates the amount of time required for an investment to pay back the initial…

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

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

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 2P

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Concept explainers

Operating Cash Flows

A cash flow statement (CFS) helps the company to know the amount of cash at its disposal, the activities that lead to earning cash, and the activities which require cash expenditure for a particular period. The statement represents the liquidity of the company.

Question

Gadubhai

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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