000 10000 0 1000 20000 1 6 4111 10000 6 0507 17560 6

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ed Required: Determine each proposal's payback. Answer: Proposal X $180,000 0 75,000 75,000 75,000 75,000 100,000 80,000 40,000 10,000 0 Proposal Y $120,000 0 50,000 48,000 44,000 8,000 80,000 60,000 40,000 20,000 0 Proposal Z $190,000 10,000 80,000 80,000 80,000 80,000 60,000 50,000 30,000 15,000 10,000 Proposal X payback = $180,000/$75,000 = 2.4 years Proposal Y Year 0 Year 1 Year 2 Year 3 Cash Savings $50,000 48,000 44,000 Savings Accumulated $ 50,000 98,000 142,000 To Be Recovered $120,000 Proposal Y payback = 2 years plus $22,000/$44,000 or 2.5 years. Proposal Z payback = ($190,000 + $10,000)/$80,000 = 2.5 years Diff: 3 Terms: payback Objective: 4 AACSB: Analytical skills 116) Central Trailer Supply has received three proposals for its new trailer assembly line. Informati on on each proposal is as follows: Initial investment in equipment Working capital needed Annual cash saved by operations: Year 1 Year 2 Year 3 Year 4 Salvage value end of year: Year 1 Year 2 Year 3 Year 4 Working capital returned: Required: Determine each proposal's payback. Answer: Proposal X $115,000 0 55,000 55,000 55,000 55,000 30,000 25,000 20,000 15,000 0 Proposal Y $130,000 0 60,000 40,000 40,000 10,000 25,000 20,000 15,000 10,000 0 Proposal Z $145,0000 15,000 60,000 60,000 60,000 60,000 45,000 40,000 35,000 25,000 15,000 Proposal X payback = $115,000/$55,000 = 2.09 years Proposal Y Year 0 Year 1 Year 2 Year 3 Cash Savings $60,000 40,000 25,000 Savings Accumulated $ 60,000 100,000 140,000 To Be Recovered $130,000 Proposal Y payback = 2 years plus $30,000/$40,000 or 2.75 years. Proposal Z payback = ($145,000 + $15,000)/$60,000 = 2.67 years Diff: 3 Terms: payback Objective: 4 AACSB: Analytical skills 117) Book & book inventories. The machine sells for $36,586 and requires working capital of $4,000. Its estimated useful life is five Bible years and will have a salvage value of $4,000. Recovery of working capital will be $4,000 at the end of its useful life. Bookstore Annual cash savings from the purchase of the machine will be $10,000. desires to b...
View Full Document

This note was uploaded on 09/18/2010 for the course ACCT 424 taught by Professor All during the Spring '10 term at DeVry Long Beach.

Ask a homework question - tutors are online