Lenitnes Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of $250,000 and will yield the following expected cash flows. Management requires investments to have a payback period of three years, and it requires a 10% return on its investments.
Period Cash Flow
1 . . . . . . . . . . . . . $125,000
2 . . . . . . . . . . . . . . 94,000
3 . . . . . . . . . . . . . . 75,000
4 . . . . . . . . . . . . . . 52,000
5 . . . . . . . . . . . . . . 47,000
Required
1. Determine the payback period for this investment.
2. Determine the break-even time for this investment.
3. Determine the net present value for this investment.
Analysis component
4. Should management invest in this project? Explain.
5. Compare your answers for parts 1 through 4 with those for Problem 11-5A. What are the causes of the differences in results and your conclusions?
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