00:01
In the given question for eastern company, we need to find out the discounted payback period.
00:07
Now in the question it is given that if the company installs our equipment of $345 ,000, then they are going to have a cost saving of $220 ,000 in the first year.
00:21
In the second year, the cost saving will be of $100 ,000.
00:26
Again in the third year also of $100 ,000.
00:29
Lastly in the fourth year also hundred thousand dollars now the cost of capital is given to be nine percent so if we calculate the present value factor this is going to be one divided by one plus rate of interest that is 0 .09 to the power one and that gives us 0 .9174 similarly for the third year the pb factor that is present value factor that is present value factor will be 1 plus 0 .09 to the power 2 and that gives us 0 .84168.
01:11
For the third year, this is going to be 1 plus 0 .09 to the power 3 and the value that comes is 0 .7722.
01:25
Finally for the fourth year, this will be 1 plus 0 .0 .09 to the power 4.
01:31
And that comes to 0 .784.
01:38
Now, the fourth column is of discounted cash, cash inflow or the discounted cost saving that we are having.
01:45
And this can be calculated by taking the product of cost saving with its present value factor, that is a times b.
01:54
So the first year the cost saving is going to be 201828.
02:01
For the second year, this will be 8468...