Franklin Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Franklin would sell it at the end of the fifth year of its useful life. The expected cash inf
Franklin Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Franklin would sell it at the end of the fifth year of its useful life. The expected cash inf
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 18EA: Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and...
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Franklin Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Franklin would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow: \table[[Year,Nature of Item,
![Franklin Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased
on an annual basis during its first two years of operation, Thereafter, it would be leased to the general public on demand. Franklin
would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow:
Year
Year 1
Nature of Item
Cash Inflow Cash Outflow
Purchase price
$86,800
Year 1
Revenue
$33,500
Year 2
Revenue
33,500
Year 3
Revenue
28,500
Year 3
Major overhaul
8,700
Year 4
Revenue
19,500
Year 5
Year 5
Revenue
17,500
Salvage value
7,500
Required
a.&b. Determine the payback period using the accumulated and average cash flows approaches.
Note: Round your answers to 1 decimal place.
a. Payback period (accumulated cash flows)
b. Payback period (average cash flows)
years
years](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F84e437e0-963d-43f5-93f0-25b76fe313cb%2F79d2b65b-4576-4107-a007-5b66b40d0425%2Fp5wrkt_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Franklin Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased
on an annual basis during its first two years of operation, Thereafter, it would be leased to the general public on demand. Franklin
would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow:
Year
Year 1
Nature of Item
Cash Inflow Cash Outflow
Purchase price
$86,800
Year 1
Revenue
$33,500
Year 2
Revenue
33,500
Year 3
Revenue
28,500
Year 3
Major overhaul
8,700
Year 4
Revenue
19,500
Year 5
Year 5
Revenue
17,500
Salvage value
7,500
Required
a.&b. Determine the payback period using the accumulated and average cash flows approaches.
Note: Round your answers to 1 decimal place.
a. Payback period (accumulated cash flows)
b. Payback period (average cash flows)
years
years
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