Major corp. is considering the purchase of a new machine for $5,000 that will have an estimated useful life of five years and no salvage value. the machine will increase major's after-tax cash flow by $2,000 annually for five years. major uses the straight-line method of depreciation and has an incremental borrowing rate of 10%. the present value factors for 10% are as follows: ordinary annuity with five payments 3.79annuity due for five payments 4.17using the payback method, how many years will it take to pay back major's initial investment in the machine?

payback 2.5 years

Explanation:

the payback will be the point in time at which the project cash flow equal the invesmtent.

This method do not consider the time value of money so we don't have to adjust any period cashflow or outflow.

investment: 5,000

increase in cash-flow 2,000

Investment/cash flow = 5,000 / 2,000 = 2.5 years

The depreciation are not considered as this are not cash flow.

a manufacturer of printed circuit boards uses exponential smoothing with trend to forecast monthly demand of its product. at the end of december, the company wishes to forecast sales for january. the estimate of trend through november has been 200 additional boards sold per month. average sales have been around 1000 units per month. the demand for december was 1100 units. the company uses α = 0.20 and β = 0.10. make a forecast including trend for the month of january.