Barker 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. Barker 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 |
| 2015 |
Purchase price |
|
|
|
$ |
97,600 |
|
| 2015 |
Revenue |
$ |
39,500 |
|
|
|
|
| 2016 |
Revenue |
|
39,500 |
|
|
|
|
| 2017 |
Revenue |
|
28,500 |
|
|
|
|
| 2017 |
Major overhaul |
|
|
|
|
9,900 |
|
| 2018 |
Revenue |
|
25,500 |
|
|
|
|
| 2019 |
Revenue |
|
23,500 |
|
|
|
|
| 2019 |
Salvage value |
|
8,700 |
|
|
|
|
Required
a. Determine the payback period using the accumulated cash flows approach.