The annual cash inflows for the investment project include $6,000 for Year1, $5,500 for Year2, $7,000 for Year3, and $8,000 for Year4. The initial of $15,000 has a discount rate of 14%. From the above investment metrics, the discounted payment are follows: $5,263.16 Year1, $4,232.07 Year2, $4,724.80 Year3, and $4,736.64 Year4. The annual levels of discounted period payments will have continued for duration of 3.16 years. With an initial investment being $12,000, the payback period will be 2.53 while an investment of $16,000 will be 3.38 years. The findings indicate that the investment project will produce better profits with an initial investment of $12,000 than investing in $15,000 or $16,000 initially. Investments with shorter payback periods often produce the most desired benefits to the company.
Investing in the new technology will produce significant financial gains based on the annual cash flows and incremental cash flows. The NPV for the incremental cash flows is $12,377, 198.59 when the new technology is introduced. Although the significant drop in NPV is reported from the incremental cash flow appraisal, several of the cash flow elements are connected to the higher operating expenses and earnings before interest and taxes, especially with the introduction of the new tech. Over the years, however, positive cash flows will be reported, especially when the old system ceases operating in the next four years. Investing in the new technology, in this regard, is feasible regarding profits and sustainability of operations after the old system stops functioning within the stated period.
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References
Berry, A. (1999). Financial accounting: An introduction . Cengage Learning EMEA.
Financial accounting financial accounting. (2008). https://doi.org/10.4135/9781446214688
