Question

Heels, a shoe manufacturer, is evaluating the costs and benefits of new equipment that would custom fit each pair of athletic shoes. The customer would have his or her foot scanned by digital computer equipment; this information would be used to cut the raw materials to provide the customer a perfect fit. The new equipment costs $111,000 and is expected to generate an additional $44,000 in cash flows for 5 years. A bank will make a $111,000 loan to the company at a 12% interest rate for this equipment’s purchase and compute the recovery time for both the payback period and break-even time. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

part a)

Compute the recovery time for the payback period.

Payback Period
Choose Numerator:	/	Choose Denominator:	=	Payback Period
	/		=	Payback period
			=	0

part b)

Compute the recovery time for the break-even time. (Cumulative net cash outflows must be entered with a minus sign. Round your Break-even time answer to 1 decimal place.)

Chart Values are Based on:
i =
Year	Cash Inflow (Outflow)	x	PV Factor	=	Present Value	Cumulative Present Value of Inflow (Outflow)
0	$(111,000)	x	1.0000	=	$(111,000)	$(111,000)
1				=
2				=
3				=
4				=
5				=

Answer 1

		payback period
Choose Numerator			/	Choose Denominator			=	Payback
								period
Cost of investment			/	Annual net cash flow			=	Payback period
111,000			/	44,000			=	2.52
Chart values are Based on:
i=	12%
	Cash inflow/	Table	PV of	Cumulative
Year	outflow	factor	cash flows	PV
0	-111,000	1	-111000	-111000
1	44,000	0.89286	39286	-71714
2	44,000	0.79719	35076	-36638
3	44,000	0.71178	31318	-5319
4	44,000	0.63552	27963	22643
5	44,000	0.56743	24967	47610
	Break even time=		3.2	years

please use the factor tables as given in your question