# 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 considerationsThe 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.

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