Question

A company purchased a new laser milling machine. The initial cost is determined to be $1,400,000....

A company purchased a new laser milling machine. The initial cost is determined to be $1,400,000. It is estimated that this new machine will save $200,000 the first year and increase gradually by $100,000 every year for the next 6 years. Find the payback period for this equipment purchase. MARR=10%. ** PLEASE SHOW HOW TO GET ALL STEPS AND THE FORMULAS PLEASE

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Answer #1

The correct answer is 4 Years

Note :

Payback Period = ( Last Year with a Negative Cash Flow ) + [( Absolute Value of negative Cash Flow in that year)/ Total Cash Flow in the following year)]

= 3 + (500,000 / 500,000)

= 4 Years

Year Investment Cash Inflow Net Cash Flow
0 -14,00,000 -    -14,00,000 (Investment + Cash Inflow)
1 -    2,00,000 -12,00,000 (Net Cash Flow + Cash Inflow)
2 -    3,00,000 -9,00,000 (Net Cash Flow + Cash Inflow)
3 -    4,00,000 -5,00,000 (Net Cash Flow + Cash Inflow)
4 -    5,00,000 -    (Net Cash Flow + Cash Inflow)
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