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: Year Year 1 Year 1 Year 2 Year 3 Year 3 Year 4 Year 5 Year 5 Nature of Item Purchase price Revenue Revenue Revenue Major overhaul Revenue Revenue Salvage value 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
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: Year Year 1 Year 1 Year 2 Year 3 Year 3 Year 4 Year 5 Year 5 Nature of Item Purchase price Revenue Revenue Revenue Major overhaul Revenue Revenue Salvage value 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
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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:
Year
Year 1
Year 1
Year 2
Year 3
Year 3
Year 4
Year 5
Year 5
Nature of Item
Purchase price
Revenue
Revenue
Revenue
Major overhaul
Revenue
Revenue
Salvage value
Cash Inflow
$36,500
36,500
25,500
22,500
20,500
8,100
a. Payback period (accumulated cash flows)
b. Payback period (average cash flows)
Cash Outflow
$89, 200
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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