Zachary 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. Zachary would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow: Cash Inflow $39,500 39,500 28,500 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 25,500 23,500 8,700 Cash Outflow $97,600 a. Payback period (accumulated cash flows) b. Payback period (average cash flows) 9,900 Required a.&b. Determine the payback period using the accumulated and average cash flows approaches. Note: Round your answers to 1 decimal place. years years
Zachary 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. Zachary would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow: Cash Inflow $39,500 39,500 28,500 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 25,500 23,500 8,700 Cash Outflow $97,600 a. Payback period (accumulated cash flows) b. Payback period (average cash flows) 9,900 Required a.&b. Determine the payback period using the accumulated and average cash flows approaches. Note: Round your answers to 1 decimal place. years years
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Zachary 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. Zachary
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
$39,500
39,500
28,500
25,500
23,500
0,700
Cash Outflow
$97,600
ja. 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.
9,900
years
years
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