Calculate the payback period.

Question

Ten years ago, Johnson Recovery purchased a wrecker for $330, 000 to move disabled 18-wheelers. He received a salvage value of $25,000 after 10 years of use. During this 10-year period, his average annual revenue totaled $60,000. a) Did he recover his investment at 12% per year return? In other words, does the Annual Equivalent Value of the benefits exceed the Capital Recovery cost at an interest rate of 12%? b) Suppose Johnson moves, on average, 250 disabled 18-wheelers each year. What is his average equivalent benefit/cost per vehicle moved? c) Now, incorporate annual operating and maintenance costs into your analysis. If the annual O&M cost was $5,000 the first year and increased by a constant 10% per year, what is the annual equivalent worth at 12% per year?

Answer 1

Question

Chapter 5, Problem 57P

(a):

To determine

Calculate the payback period.

(b):

To determine

Calculate the discounted payback period.

(c):

To determine

Conclusion.

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