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 Nature of Item Cash Inflow Purchase price Cash Outflow $89,200 Year 1 Revenue $36,500 Year 2 Revenue 36,500 Year 3 Revenue 25,500 Year 3 Major overhaul 9,300 Year 4 Revenue 22,500 Year 5 Year 5 Revenue 20,500 Salvage value 8,100 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
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 Nature of Item Cash Inflow Purchase price Cash Outflow $89,200 Year 1 Revenue $36,500 Year 2 Revenue 36,500 Year 3 Revenue 25,500 Year 3 Major overhaul 9,300 Year 4 Revenue 22,500 Year 5 Year 5 Revenue 20,500 Salvage value 8,100 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
Section: Chapter Questions
Problem 1PS
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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
Nature of Item
Cash Inflow
Purchase price
Cash Outflow
$89,200
Year 1
Revenue
$36,500
Year 2
Revenue
36,500
Year 3
Revenue
25,500
Year 3
Major overhaul
9,300
Year 4
Revenue
22,500
Year 5
Year 5
Revenue
20,500
Salvage value
8,100
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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