Metlock Inc. wants to replace its current equipment with new high-tech equipment. The existing equipment was purchased 5 yearsago at a cost of $121,000. At that time, the equipment had an expected life of 10 years, with no expected salvage value. Theequipment is being depreciated on a straight-line basis. Currently, the market value of the old equipment is $43.500.The new equipment can be bought for $173,440, including installation. Over its 10-year life, it will reduce operating expenses from$190,600 to $148,700 for the first six years, and from $202,600 to $191,800 for the last four years. Net working capital requirementswill also increase by $20,900 at the time of replacement.It is estimated that the company can sell the new equipment for $24,100 at the end of its life. Since the new equipment's cash flowsare relatively certain, the project's cost of capital is set at 10%, compared with 15% for an average-risk project. The firm's maximumacceptable payback period is 5 years.Click here to view the factor table.(a)(b)Calculate the project's cash payback period. (Round answer to 2 decimal places, e.g. 15.25.)Cash payback periodyears

Name: Metlock Inc. wants to replace its current equipment with new high-tec
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Description: Metlock Inc. wants to replace its current equipment with new high-tech equipment. The existing equipment was purchased 5 yearsago at a cost of $121,000. At that time, the equipment had an expected life of 10 years, with no expected salvage value. Th

Payback period is the period within which the sum invested by the company in a project will be…

Answered: Calculate the project's cash payback…

Business

Finance

Calculate the project's cash payback period. (Round answer to 2 decimal places, eg. 15.25.) Cash payback period years

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 17P

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