x. x.x=sp; (1) Calculating Pay-back Period: System A Year Cash flows

QUESTION

x.
x.x=sp; (1) Calculating Pay-back Period: System A Year Cash flows Net Cashflows 0 -120,000 -120,000 1 65,000 -55,000 2 55,000 0 3 35,000 4 15,000 5 25,000 Pay-back Period = 2 Years System B Year Cash flows Net Cashflows 0 -100,000 -100,000 1 45,000 -55,000 2 35,000 -20,000 3 35,000 15,000 4 25,000 5 15,000 Payback Period = Last year with a negative NCF Absolute value of NCF in that year / Total Cash flow in the following year = 2 $20,000 / $35,000 = 2 0.57 = 2.57 years Pay-back Period = 2.57 Years System C Year Cash flows Net Cashflows 0 -85,000 -85,000 1 15,000 -70,000 2 30,000 -40,000 3 30,000 -10,000 4 40,000 30,000 5 45,000 Payback Period = Last year with a negative NCF Absolute value of NCF in that year / Total Cash flow in the following year = 3 $10,000 / $40,000 = 3 0.25 = 3.25 years Pay-back Period = 3.25 Years (2) Calculating Average Rate of Return: ARR = Average Cash flows / Average Investment Average Cash flows of System A = 65,000 55,000 35,000 15,000 25,000 / 5 = 195,000 / 5 = $39,000 The Cost of System A is $120,000. The Average Investment in this new system A is simply one half its

ial cost: $120,000 / 2 = $60,000 ARR of System A = $39,000 / $60,000 = 0.65 (or) 65% ARR of System A = 65% Average Cash flows of System A = 45,000 35,000 35,000 25,000 15,000 / 5 = 155,000 / 5 = $31,000 Average Investment of System B = $100,000 / 2 = $50,000 ARR of System B = $31,000 / $50,000 = 0.62 (or) 62% ARR of System B = 62% Average Cash flows of System C = 15,000 30,000 30,000 40,000 45,000 / 5 = 160,000 / 5 = $32,000 Average Investment of System C = $85,000 / 2 = $42,500 ARR of System C = $32,000 / $42,500 = 0.75 (or) 75% ARR of System C = 75% (3) Calculating Net Present Value: System A Years Cashflows Present Value Factors at 10% Present Values 0 ($120,000) 1 ($120,000) 1 $65,000 0.909 $59,085 2 $55,000 0.826 $45,430 3

ANSWER:

CLICK REQUEST FOR  AN EXPERT SOLUTION