Question

Cash Payback Period, Net Present Value Analysis, and Qualitative Considerations The plant manager of Shannon Electronics...

Cash Payback Period, Net Present Value Analysis, and Qualitative Considerations

The plant manager of Shannon Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $168,000. The manager believes that the new investment will result in direct labor savings of $56,000 per year for 10 years.

Present Value of an Annuity of $1 at Compound Interest
Year 6% 10% 12% 15% 20%
1 0.943 0.909 0.893 0.870 0.833
2 1.833 1.736 1.690 1.626 1.528
3 2.673 2.487 2.402 2.283 2.106
4 3.465 3.170 3.037 2.855 2.589
5 4.212 3.791 3.605 3.353 2.991
6 4.917 4.355 4.111 3.785 3.326
7 5.582 4.868 4.564 4.160 3.605
8 6.210 5.335 4.968 4.487 3.837
9 6.802 5.759 5.328 4.772 4.031
10 7.360 6.145 5.650 5.019 4.192

a. What is the payback period on this project?
____ years

b. What is the net present value, assuming a 12% rate of return? Use the table provided above. Round to the nearest whole dollar.

Net present value ______ $

c. What else should the manager consider in the analysis?

Homework Answers

Answer #1

A) Here in this problem annual earnings are equal for every year so

Pay back period = project cost / annual savings

=$168000/$56000 = 3 years

Intial investment recovered in 3 years

B) Npv = present value of cash in flow - Intial investment

= 5.650*$56000 - $168000

=$316,400 - $168,000 = $148,400

C) with this analysis manager can accept the project because according to pay back period the money recovered in only 3 years  

And according to NPV the project have higher positive Npv

Thank u

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Cash Payback Period, Net Present Value Analysis, and Qualitative Considerations The plant manager of Shenzhen Electronics...
Cash Payback Period, Net Present Value Analysis, and Qualitative Considerations The plant manager of Shenzhen Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $375,000. The manager believes that the new investment will result in direct labor savings of $75,000 per year for 10 years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528...
A project is estimated to cost $77,766 and provide annual net cash flows of $26,000 for...
A project is estimated to cost $77,766 and provide annual net cash flows of $26,000 for five years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968...
Average Rate of Return, Cash Payback Period, Net Present Value Method for a Service Company Spanish...
Average Rate of Return, Cash Payback Period, Net Present Value Method for a Service Company Spanish Peaks Railroad Inc. is considering acquiring equipment at a cost of $1,250,000. The equipment has an estimated life of eight years and no residual value. It is expected to provide yearly net cash flows of $312,500. The company’s minimum desired rate of return for net present value analysis is 12%. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12%...
Average Rate of Return, Cash Payback Period, Net Present Value Method for a Service Company Spanish...
Average Rate of Return, Cash Payback Period, Net Present Value Method for a Service Company Spanish Peaks Railroad Inc. is considering acquiring equipment at a cost of $144,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $72,000. The company's minimum desired rate of return for net present value analysis is 12%. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12%...
Average Rate of Return, Cash Payback Period, Net Present Value Method for a Service Company Spanish...
Average Rate of Return, Cash Payback Period, Net Present Value Method for a Service Company Spanish Peaks Railroad Inc. is considering acquiring equipment at a cost of $295,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $59,000. The company's minimum desired rate of return for net present value analysis is 10%. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12%...
Average Rate of Return, Cash Payback Period, Net Present Value Method for a Service Company Spanish...
Average Rate of Return, Cash Payback Period, Net Present Value Method for a Service Company Spanish Peaks Railroad Inc. is considering acquiring equipment at a cost of $210,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $42,000. The company's minimum desired rate of return for net present value analysis is 10%. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12%...
Average Rate of Return, Cash Payback Period, Net Present Value Method Bi-Coastal Railroad Inc. is considering...
Average Rate of Return, Cash Payback Period, Net Present Value Method Bi-Coastal Railroad Inc. is considering acquiring equipment at a cost of $128,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $64,000. The company’s minimum desired rate of return for net present value analysis is 15%. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909...
Average Rate of Return, Cash Payback Period, Net Present Value Method Bi-Coastal Railroad Inc. is considering...
Average Rate of Return, Cash Payback Period, Net Present Value Method Bi-Coastal Railroad Inc. is considering acquiring equipment at a cost of $220,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $44,000. The company’s minimum desired rate of return for net present value analysis is 15%. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909...
A project has estimated annual net cash flows of $12,500 for ten years and is estimated...
A project has estimated annual net cash flows of $12,500 for ten years and is estimated to cost $37,500. Assume a minimum acceptable rate of return of 20%. Use the Present Value of an Annuity of $1 at Compound Interest table below. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037...
A project is estimated to cost $191,850 and provide annual net cash flows of $50,000 for...
A project is estimated to cost $191,850 and provide annual net cash flows of $50,000 for eight years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT