Investment decision : payback period :
QUESTION : INVESTMENT PROBLEM :
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 :