BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

Solutions

Chapter
Section
BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

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.

  1. a. What is the payback period on this project?
  2. 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.
  3. 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.

To determine:  The cash payback period on this project.

Explanation

Calculation of cash payback period is as follows:

CashPayBackPeriod=InitialCost

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

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

What are the disadvantages of a corporation?

Foundations of Business (MindTap Course List)

Why should policymakers think about incentives?

Principles of Microeconomics (MindTap Course List)

PURCHASING POWER PARITY A television costs 500 in the United States. The same television costs 312.5 euros. If ...

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