Payback period of the proposed acquisition and interpret

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Reference no: EM13917960

The new Big Electical Warehouse, Inc., is thinking of buy a new machine on January 1, 2016 for $100,000 and have an estimated salvage value at the end of its estimated 5-year estimated life of $15,000

	2016	2017	2018	2019	2020
Net income	$ 7,000	$8,000	$9,000	$9,500	$9,500
Operating cash flows	20,000	21,000	21,000	19,000	19,500

The company's required rate of return is 6% and its cost of capital is 5%. The income tax rate is 30%.

Determine the payback period of the proposed acquisition and interpret your answer.

What are the problems with payback period?

Reference no: EM13917960

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