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Determining payback period for the truck

Problem:

Lotus Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this years capital budget. The projects are independent. The firms cost of capital is 12%. The after tax cash flows, including depreciation, for the truck and the pulley are as follows: Year Truck Pulley 0 -50000 -70000 1 10000 15000 2 10000 15000 3 10000 15000 4 10000 15000 5 10000 15000 6 10000 15000 7 10000 15000

a. What is the payback period for the truck?

b. What is the payback period for the pulley?

c. What is NPV for the truck?

d. What is NPV for the pulley?

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Accounting Basics: Determining payback period for the truck

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