menu
bartleby
search
close search
Hit Return to see all results
close solutoin list

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 $1,400,000. The manager believes that the new investment will result in direct labor savings of $350,000 per year for 10 years. A. What is the payback period on this project? B. What is the net present value, assuming a 10% rate of return? Use the present value of an annuity of $1 table in Exhibit 5. C. What else should the manager consider in the analysis?

BuyFindarrow_forward

Financial & Managerial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337119207

Solutions

Chapter
Section
BuyFindarrow_forward

Financial & Managerial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337119207
Chapter 25, Problem 25.15EX
Textbook Problem
26 views

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 $1,400,000. The manager believes that the new investment will result in direct labor savings of $350,000 per year for 10 years.

A. What is the payback period on this project?

B. What is the net present value, assuming a 10% rate of return? Use the present value of an annuity of $1 table in Exhibit 5.

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

(a)

To determine

Cash payback method:

Cash payback period is the expected time period which is required to recover the cost of investment. It is one of the capital investment method used by the management to evaluate the long-term investment (fixed assets) of the business.

 The cash payback period on this project.

Explanation of Solution

Calculation of cash payback period is as follows:

CashPayBackPeriod=InitialCostAnnu

(b)

To determine

To calculate: The net present value of the investment using the present value of an annuity of $1 table in Exhibit 5.

(c)

To determine

To explain: The various missing aspects that the manager should consider in analysis.

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Chapter 25 Solutions

Financial & Managerial Accounting
Show all chapter solutions
add
Ch. 25 - What are the major advantages of leasing a fixed...Ch. 25 - Give an example of a qualitative factor that...Ch. 25 - Average rate of return Determine the average rate...Ch. 25 - Cash payback period A project has estimated annual...Ch. 25 - Net present value A project has estimated annual...Ch. 25 - Internal rate of return A project is estimated to...Ch. 25 - Net present valueunequal lives Project 1 requires...Ch. 25 - Average rate of return The following data are...Ch. 25 - Average rate of returncost savings Midwest...Ch. 25 - Average rate of returnnew product Galactic Inc. is...Ch. 25 - Calculate cash flows Natures Way Inc. is planning...Ch. 25 - Cash payback period for a service company Chinook...Ch. 25 - Cash payback method Lily Products Company is...Ch. 25 - Net present value method The following data are...Ch. 25 - Net present value method for a service company AM...Ch. 25 - Net present value method annuity for a service...Ch. 25 - Net present value method annuity Briggs Excavation...Ch. 25 - Net present value method for a service company...Ch. 25 - Present value index Dip N' Dunk Doughnuts has...Ch. 25 - Net present value method and present value index...Ch. 25 - Average rate of return, cash payback period, net...Ch. 25 - Cash payback period, net present value analysis,...Ch. 25 - Internal rate of return method The internal rate...Ch. 25 - Internal rate of return method for a service...Ch. 25 - Internal rate of return methodtwo projects Munch N...Ch. 25 - Net present value method and internal rate of...Ch. 25 - Identify error in capital investment analysis...Ch. 25 - Net present value unequal lives Bunker Hill Mining...Ch. 25 - Net present value unequal lives Daisys Creamery...Ch. 25 - Average rate of return method, net present value...Ch. 25 - Cash payback period, net present value method, and...Ch. 25 - Net present value method, present value index, and...Ch. 25 - Net present value method, internal rate of return...Ch. 25 - Alternative capital investments The investment...Ch. 25 - Capital rationing decision for a service company...Ch. 25 - Average rate of return method, net present value...Ch. 25 - Cash payback period, net present value method, and...Ch. 25 - Net present value method, present value index, and...Ch. 25 - Net present value method, internal rate of return...Ch. 25 - Alternative capital investments The investment...Ch. 25 - Capital rationing decision for a service company...Ch. 25 - Wind turbine capital investment analysis Central...Ch. 25 - Paper reclaim capital investment analysis The...Ch. 25 - Tire design capital investment analysis...Ch. 25 - Ethics in Action Danielle Hastings was recently...

Additional Business Textbook Solutions

Find more solutions based on key concepts
Show solutions add
What is a seal of assurance?

Accounting Information Systems

Assume that an average firm in the office supply business has a 6% profit margin, a 40% total liabilities/asset...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)