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6
3.75
points
Thornton 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. Thornton
would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow.
Year
Nature of Iten
Cash Inflow Cash Outflow
Year 1
Purchase price
\$93,400
Year 1
Revenue
\$38,000
Year 2
Revenue
38,000
Year 3
Revenue
27,000
Year 3
Major overhaul
9,600
Year 4
Revenue
24,000
Year 5
Revenue
22,000
Year 5
Salvage value
8,400
Required
a.&b. Determine the payback period using the accumulated and average cash flows approaches. (Round your answers to 1 decimal
place.)
Answer is not complete.
Payback period (accumulated cash flows)
3.0 years
D
Payback period (average cash flows)
years