Questions: Required information Project Y requires a 350,000 investment for new machinery with a four-year life and no salvage value. The project yields the following annual results. Cash flows occur evenly within each year. (PV of 1, FV of 1, PVA of 1, and FVA of 1) Note: Use appropriate factor(s) from the tables provided. 2. Determine Project Y's payback period.

Solution Steps

To determine Project Y's payback period, we need to calculate the time it takes for the project to recover its initial investment of $350,000 from its annual cash flows. We will sum the annual cash flows until the cumulative cash flow equals or exceeds the initial investment.

We need to determine the cumulative cash flows for each year until the cumulative amount equals or exceeds the initial investment of \$350,000.

Given annual cash flows: \[ \text{Year 1: } \$100,000 \] \[ \text{Year 2: } \$120,000 \] \[ \text{Year 3: } \$130,000 \] \[ \text{Year 4: } \$150,000 \]

We sum the cash flows year by year:

\[ \text{Cumulative Cash Flow after Year 1: } \$100,000 \] \[ \text{Cumulative Cash Flow after Year 2: } \$100,000 + \$120,000 = \$220,000 \] \[ \text{Cumulative Cash Flow after Year 3: } \$220,000 + \$130,000 = \$350,000 \]

The cumulative cash flow equals the initial investment of \$350,000 at the end of Year 3. Therefore, the payback period is 3 years.

Final Answer