Benson Company has an opportunity to purchase a forklift to use in its heavy equipment...
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Accounting
Benson 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. Benson would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow:
Year
Nature of Item
Cash Inflow
Cash Outflow
2018
Purchase price
$
81,200
2018
Revenue
$
31,500
2019
Revenue
31,500
2020
Revenue
26,500
2020
Major overhaul
8,300
2021
Revenue
17,500
2022
Revenue
15,500
2022
Salvage value
7,100
Required
a.&b. Determine the payback period using the accumulated and average cash flows approaches. (Round your answers to 1 decimal place.)
a.
Payback period (accumulated cash flows)
years
b.
Payback period (average cash flows)
years
Answer & Explanation
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