Determine the payback period using the accumulated

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Question

Fanning Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Fanning would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow.

Year Nature of Item Cash Inflow Cash Outflow

2018 Purchase price $84,000

2018 Revenue $32,500

2019 Revenue 32,500

2020 Revenue 27,500

2020 Major overhaul 8,500

2021 Revenue 18,500

2022 Revenue 16,500

2022 Salvage value 7,300

Required

a.&b. Determine the payback period using the accumulated and average cash flows approaches. (Round your answers to 1 decimal place.)

a. Payback period (accumulated cash flows)_________years

b. Payback period (average cash flows)_______years

Reference no: EM132363305

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