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 breakeven 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.

part b)
Compute the recovery time for the breakeven time. (Cumulative net cash outflows must be entered with a minus sign. Round your Breakeven time answer to 1 decimal place.)

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
Get Answers For Free
Most questions answered within 1 hours.