Question

A specialized automatic machine costs $250,000 and is expected to save $38,950 per year while in...

A specialized automatic machine costs $250,000 and is expected to save $38,950 per year while in operation. Using a 9 % interest rate, what is the discounted payback period (in years).

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Answer #1

Y

Cash flow

Discount factor at 9%

Cash flow*Discount factor

Cumulative Cash flow

0

-250000

1

-250000.00

-250000.00

1

38950

0.92

35733.94

-214266.06

2

38950

0.84

32783.44

-181482.62

3

38950

0.77

30076.55

-151406.07

4

38950

0.71

27593.16

-123812.91

5

38950

0.65

25314.83

-98498.08

6

38950

0.60

23224.61

-75273.47

7

38950

0.55

21306.98

-53966.49

8

38950

0.50

19547.69

-34418.80

9

38950

0.46

17933.66

-16485.13

10

38950

0.42

16452.90

-32.23

11

38950

0.39

15094.40

15062.17

12

38950

0.36

13848.08

28910.25

13

38950

0.33

12704.66

41614.91

14

38950

0.30

11655.65

53270.56

15

38950

0.27

10693.26

63963.81

Discounted pay back period = 10+(-32.23/15094.40) = 10 years

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