You run an online business and you are considering an upgrade to your website. The upgrade will cost you a one-time fee of $8,000 today. You expect that the upgrade will generate an additional profit flow of $5,000 per year. (This income stream is continuous and constant.) Assume that the interest rate is 8% compounded continuously. How long will it take for the upgrade to "pay for itself"? In other words, over what period of time will the present value of the additional profit generated by the upgrade be equal to the cost of the upgrade itself?

You run an online business and you are considering an upgrade to your website. The upgrade will cost you a one-time fee of $8,000 today. You expect that the upgrade will generate an additional profit flow of $5,000 per year. (This income stream is continuous and constant.) Assume that the interest rate is 8% compounded continuously. How long will it take for the upgrade to "pay for itself"? In other words, over what period of time will the present value of the additional profit generated by the upgrade be equal to the cost of the upgrade itself?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 5PB: Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated...

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Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?
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