Payback & NPV
Julia Corp. is in the business of making sugar cookies. The company is considering the purchase of a new cookie making machine which will improve its manufacturing process and result in significant cost savings. The equipment costs $250,000 and the resulting financial impact is an after-tax cash flow savings of $60,000 in yr. 1 with this savings increasing by $10,000 annually with the 5th year resulting in after-tax cash flow savings of $100,000. At the end of the 5th year the machine will be sold for $10,000. Assume that the prevailing market rate of interest is 13%.
Determine the payback period for the proposed investment?