The management of Ritz Corporation is considering the purchase of a new machine costing $500,000 with no residual value The company's desired rate of return is 10%. In addition to the foregoing information, use the following data in determining the acceptability of this investment:
Year Net income Net cash flow
1 $100,000 $200,000
2 80,000 170,000
3 50,000 130,000
4 10,000 20,000
5 10,000 80,000
1. The cash payback period for this investment is:
a) 5 years
b) 3 years
c) 2 years
d) 4 years
2. Using partial present value tables, what is the next present value?
a) $50,000
b) -$19,730
c) -$-16,810
d) $100,000