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Calculate the payback period for this investment

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Reference no: EM133104008

Question - Directors of Cootha Constructions Ltd are considering the purchase of a new machine.

The machine will cost $90,000.

There will be net cash inflows in each of the three years of: Year 1: $42,000, Year 2:  $45,000 and Year 3: $30,000.

The machine is thought to have a residual value of $15,000 at the end of year 3.

The required rate of return (RRR) is 20%.

Required -

1. Calculate the Payback Period for this Investment.

2. If the payback period is less than a pre-specified length of time or less than the life of the investment you accept the project.

3.The payback period (PP) method of investment decision making is generally regarded as:  Mostly accurate Too simplistic to be the only tool used in decision-making?

Reference no: EM133104008

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