(a) Determine the payback period at an interest rate of 8% per year for an asset that initially cost $28,000, has a scrap value of $1500 whenever it is sold, and generates cash flow of $2900 per year.

(b) If the asset will be in service for 12 years, should it be purchased?

Question

(a) Determine the payback period at an interest rate of 8% per year for an asset that initially cost $28,000, has a scrap value of $1500 whenever it is sold, and generates cash flow of $2900 per year.

(b) If the asset will be in service for 12 years, should it be purchased?

Accepted Answer

[latex](a)[/latex] [latex]0 = -28,000 + 2900(P/A,8[/latex]%[latex],n) + 1500(P/F,8[/latex]%[latex],n)[/latex]

[latex]n = 15: 0 = -28,000 + 2900(8.5595) + 1500(0.3152) =[/latex] $[latex]2705[/latex]

[latex]n = 20: 0 = -28,000 + 2900(9.8181) + 1500(0.2145) =[/latex] $[latex]-794[/latex]

[latex]{ n }_{ p } = 18.7[/latex] years (interpolation or [latex]NPER[/latex] function)

[latex](b)[/latex] Since [latex]n[/latex] is greater than the useful period of [latex]12[/latex] years, the asset should not be purchased

Question : (a) Determine the payback period at an interest rate of 8% p...