Investment decision : payback period :

QUESTION : INVESTMENT PROBLEM :

 

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1. (TCO 8)  Planning
for capital investments is an important function of management.  You are responsible for considering
purchasing new equipment for $450,000. 
It is expected that the equipment will produce net annual cash flows of
$55,000 over its 10-year useful life. 
Annual depreciation will be $45,000. 
Compute the cash payback period. 
(1) Explain the pros and cons of using this method to evaluate a capital
expenditure (10 points) and (2)  show all
computations required to arrive at the correct solution. (15 points). (Points :
25)

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