Heels, a shoe manufacturer, is evaluating the costs and benefits of new equipment that would custom fit each pair of athletic shoes. the customer would have his or her foot scanned by digital computer equipment; this information would be used to cut the raw materials to provide the customer a perfect fit. the new equipment costs $117,000 and is expected to generate an additional $45,000 in cash flows for five years. a bank will make a $117,000 loan to the company at a 12% interest rate for this equipment’s purchase. compute the recovery time for both the payback period and break-even time. (pv of $1, fv of $1, pva of $1, and fva of $1) (use appropriate factor(s) from the tables provided.)

* Payback period: 2.6 years;

* Break-even time: 3.3 years.

Explanation:

Please find the below for detailed explanation and calculation:

* Payback period calculation:

Payback period = Initial investment outlay/ annual additional cash flow = 117,000/45,000 = 2.6 yeas;

* Break-even time calculation:

We have the net present value of the project after 3 years is:

-117,000 + (45,000/12%) x ( 1 + 1.12^-3) = $(8,917.6)

Present value of year 4 additional cash flow = 45,000 / 1.12^4 = 28,598

=> Break even time ( years) = 3 + (8,917.6/28,598) = 3.3 years.

both are integral parts of a corporate balance sheet. the cash flow statement, or statement of cash flows, measures the sources of a company's cash and its uses of cash over a specific time period. the income statement measures a company's financial performance, such as revenues, expenses, profits or losses over a specific time period (in fact, it's sometimes called a statement of financial performance).

a cash flow statement shows exactly how much money a company has received and how much it has spent, traditionally over a period of one month. it captures the current operating results and changes on the balance sheet, such as increases or decreases in accounts receivable or accounts payable, and does not include noncash accounting items such as depreciation and amortization. the cash flow generally comes from revenue received as a result of business activity, but it may be augmented by funds available as a result of credit. a cash flow statement is used to determine the short-term viability and liquidity of a company, specifically how well it is positioned to pay its bills and vendors.

answer: b 56, 250

explanation: