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# Investment Decision Making and Payback Period

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1. Assume a \$240,000 investment and the following cash flows for two products:

Year Product X Product Y
1 \$ 80,000 \$ 70,000
2 60,000 80,000
3 90,000 60,000
4 50,000 40,000

Calculate the payback for products X and Y. (Round your answers to 2 decimal places.)

2. You buy a new piece of equipment for \$29,731, and you receive a cash inflow of \$3,800 per year for 16 years. Use Appendix D.

What is the internal rate of return? (Round "PV Factor" to 3 decimal places. Round your answer to the nearest whole percent. Omit the "%" sign in your response).

3. Altman Hydraulic Corporation will invest \$124,000 in a project that will produce the cash flow shown below. The cost of capital is 13 percent. (Note that the third year's cash flow is negative). What is the net present value of the project?

Year Cash flow
1 \$ 45,000
2 57,000
3 (51,000)
4 48,000
5 80,000.

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#### Solution Preview

See the attached file.

1. Pay back period = initial investment/annual cash inflow
Product x = 240,000/70,000 = ...

#### Solution Summary

The solution discusses the investment decision making and payback period.

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