Question

The management of Zesty Corporation is considering the purchase of a new machine costing $400,000. The company s desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability in this situation: The cash payback period for this investment is:______

a. 4 years
b. 5 years
c. 2 years
d. 3 years

Answer 1

d. 3 years

Step-by-step explanation:

Missing question: 'Year Income from Operations Net Cash Flow. 1 $100,000 $180,000, 2 40,000 120,000, 3 20,000 100,000, 4 10,000 90,000, 5 10,000 90,000"

Year Income from Net cash Investment Unrecovered Investment

Operations Flow at the end of year

0 400,000 400,000

1 100,000 180,000 220,000

2 40,000 120,000 100,000

3 20,000 100,000 -

4 10,000 90,000 (90,000)

5 10,000 90,000 (180,000)

Entire investment is recovered by the end of 3 year. So, pay back period is 3 Years.