Solomon Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Solomon would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow: Year Year 1 Year 1 Year 2 Year 3 Year 3 Year 4 Year 5 Year 5 Nature of Item Purchase price Revenue Revenue Revenue Major overhaul Revenue Revenue Salvage value Cash Inflow $37,000 37,000 26,000 23,000 21,000 8,200 Cash Outflow $90,600 a. Payback period (accumulated cash flows) b. Payback period (average cash flows) 9,400 Required a.&b. Determine the payback period using the accumulated and average cash flows approaches. Note: Round your answers to 1 decimal place. years years
Solomon Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Solomon would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow: Year Year 1 Year 1 Year 2 Year 3 Year 3 Year 4 Year 5 Year 5 Nature of Item Purchase price Revenue Revenue Revenue Major overhaul Revenue Revenue Salvage value Cash Inflow $37,000 37,000 26,000 23,000 21,000 8,200 Cash Outflow $90,600 a. Payback period (accumulated cash flows) b. Payback period (average cash flows) 9,400 Required a.&b. Determine the payback period using the accumulated and average cash flows approaches. Note: Round your answers to 1 decimal place. years years
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 21P
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Question
![Solomon Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased
on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Solomon
would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow:
Year
Year 1
Year 1
Year 2
Year 3
Year 3
Year 4
Year 5
Year 5
Nature of Item
Purchase price
Revenue
Revenue
Revenue
Major overhaul
Revenue
Revenue
Salvage value
Cash Inflow
$37,000
37,000
26,000
23,000
21,000
8,200
Cash Outflow
$90,600
a. Payback period (accumulated cash flows)
b. Payback period (average cash flows)
9,400
Required
a.&b. Determine the payback period using the accumulated and average cash flows approaches.
Note: Round your answers to 1 decimal place.
years
years
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Transcribed Image Text:Solomon Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased
on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Solomon
would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow:
Year
Year 1
Year 1
Year 2
Year 3
Year 3
Year 4
Year 5
Year 5
Nature of Item
Purchase price
Revenue
Revenue
Revenue
Major overhaul
Revenue
Revenue
Salvage value
Cash Inflow
$37,000
37,000
26,000
23,000
21,000
8,200
Cash Outflow
$90,600
a. Payback period (accumulated cash flows)
b. Payback period (average cash flows)
9,400
Required
a.&b. Determine the payback period using the accumulated and average cash flows approaches.
Note: Round your answers to 1 decimal place.
years
years
< Prev
3 of 15
===
MacBook Air
Next >
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