Santana Rey is considering the purchase of equipment for Business Solutions that would allow the company to add a new product to its computer furniture line. The equipment is expected to cost $300,000 and to have a six-year life and no salvage value. The equipment is expected to generate income of $12,939 and net cash flow of $62,939 in each year of its six-year life. Santana requires an 8% return on all investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) (Negative net present values should be indicated with a minus sign. Do not round intermediate calculations. Round your present value factor to 4 decimals and final answers to the nearest whole number.) Required: 1-a. Compute the payback period for this equipment. 1-b. Compute the net present value for this equipment. 1-c. Compute internal rate of return for this equipment. 2. If Santana requires investments to have payback periods of four years or less, should she invest in this equipment? 3. If Santana requires investments to have at least an 8% internal rate of return, should she invest in this equipment? Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 1C Numerator: Compute the payback period for this equipment. 1 Req 2 and 3 1 Payback Period Denominator: < Req 1A + Payback period 0 Req 1B >
Santana Rey is considering the purchase of equipment for Business Solutions that would allow the company to add a new product to its computer furniture line. The equipment is expected to cost $300,000 and to have a six-year life and no salvage value. The equipment is expected to generate income of $12,939 and net cash flow of $62,939 in each year of its six-year life. Santana requires an 8% return on all investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) (Negative net present values should be indicated with a minus sign. Do not round intermediate calculations. Round your present value factor to 4 decimals and final answers to the nearest whole number.) Required: 1-a. Compute the payback period for this equipment. 1-b. Compute the net present value for this equipment. 1-c. Compute internal rate of return for this equipment. 2. If Santana requires investments to have payback periods of four years or less, should she invest in this equipment? 3. If Santana requires investments to have at least an 8% internal rate of return, should she invest in this equipment? Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 1C Numerator: Compute the payback period for this equipment. 1 Req 2 and 3 1 Payback Period Denominator: < Req 1A + Payback period 0 Req 1B >
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
How do I solve for payback period?
Transcribed Image Text:Santana Rey is considering the purchase of equipment for Business Solutions that would allow the company to add a new product to
its computer furniture line. The equipment is expected to cost $300,000 and to have a six-year life and no salvage value. The
equipment is expected to generate income of $12,939 and net cash flow of $62,939 in each year of its six-year life. Santana requires
an 8% return on all investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1). (Use appropriate factor(s) from the tables provided.)
(Negative net present values should be indicated with a minus sign. Do not round intermediate calculations. Round your present
value factor to 4 decimals and final answers to the nearest whole number.)
Required:
1-a. Compute the payback period for this equipment.
1-b. Compute the net present value for this equipment.
1-c. Compute internal rate of return for this equipment.
2. If Santana requires investments to have payback periods of four years or less, should she invest in this equipment?
3. If Santana requires investments to have at least an 8% internal rate of return, should she invest in this equipment?
Complete this question by entering your answers in the tabs below.
Req 1A
Req 16
Req 1C
Numerator:
Compute the payback period for this equipment.
Req 2 and 3
1
1
Payback Period
Denominator:
< Req 1A
=
=
+
Payback period
0
Req 1B >
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