Michigan Mattress Company is considering the purchase of land and the construction of a new plant.The land,which would be bought immediately (at t = 0),has a cost of $100,000 and the building,which would be erected at the end of the first year (t = 1),would cost $500,000.It is estimated that the firm's after-tax cash flow will increase by $100,000 starting at the end of the second year,and that this incremental flow would increase at a 10 percent rate annually over the next 10 years.What is the approximate payback period?

Question

Quizplus · Accepted Answer

This problem is best solved by building a payback table like the following:
 11ea7fdb_fbe4_744e_a768_1dd76029ff9a_TB2902_00 Looking at the table, we see the project's balance turns positive in Year 6.

Michigan Mattress Company Is Considering the Purchase of Land and the Construction