### Project Analysis: Payback Period MethodMadson's is evaluating two potential projects, labeled Project X and Project Y, for future investment. Assume that only one project can be selected. The cost of the machine for both projects is $30,000. The net cash flows for each project over a period of five years are as follows:#### Project X- **Cost of Machine**: $30,000- **Net Cash Flows**: - Year 1: $12,000 - Year 2: $12,000 - Year 3: $12,000 - Year 4: $0 - Year 5: $0#### Project Y- **Cost of Machine**: $30,000- **Net Cash Flows**: - Year 1: $2,000 - Year 2: $13,000 - Year 3: $13,000 - Year 4: $10,000 - Year 5: $0#### Payback Period AnalysisIf the company is using the payback period method and requires a payback within three years or less, the selection will be based on which project recovers its initial investment within that time frame (ignoring taxes).To determine the payback period:- **Project X**: - Year 1: $12,000 - Year 2: $12,000 - Year 3: $12,000 - **Cumulative Cash Flow at end of Year 3**: $36,000 Project X recovers its initial investment of $30,000 within three years. - **Project Y**: - Year 1: $2,000 - Year 2: $13,000 - Year 3: $13,000 - **Cumulative Cash Flow at end of Year 3**: $28,000 - Year 4: $10,000 - **Cumulative Cash Flow at end of Year 4**: $38,000 Project Y does not recover its initial investment of $30,000 within three years, but it does by Year 4.Based on the payback period method, which project should be selected? (Ignore taxes.)- A. Project X- B. Project Y

Payback period is the time required to recover the investment.

28. Madson's is analyzing two projects for the future. Assume that only one project can be selected. Project X Project Y Cost of $30,000 $30,000 Machine Net Cash Flow Year 1 12,000 2,000 Year 2 12,000 12,000 13,000 13,000 Year 3 Year 4 10,000 Year 5 If the company is using the payback period method and requires payback within three years or less, which project should be selected? (Ignore taxes.) A. Project X B. Project Y C. Either Project X or Y is acceptable D. Neither Project X nor Y is acceptable

28. Madson's is analyzing two projects for the future. Assume that only one project can be selected. Project X Project Y Cost of $30,000 $30,000 Machine Net Cash Flow Year 1 12,000 2,000 Year 2 12,000 12,000 13,000 13,000 Year 3 Year 4 10,000 Year 5 If the company is using the payback period method and requires payback within three years or less, which project should be selected? (Ignore taxes.) A. Project X B. Project Y C. Either Project X or Y is acceptable D. Neither Project X nor Y is acceptable

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

You must decide firm which of the proposed projects should be accepted for the upcoming year since only $6 million is available. Which projects should be accepted? Project Cost (millions) NPV(millions) A 3.25 0.80 В 1.75 0.52 C 4.5 0.69 D 3.75 0.95 E 1.25 0.25 F 0.50 0.25
Problem 4. Which project would you select on the basis of rate of return, assuming MARR =15%. Please use excel spreadsheet to answer.
Q1: For the machines indicated below. Consider i= 10% per year First cost Annual cost Salvage value Life duration Machine A 20,000 $ 5,000 $ 7,500 $ 3 Machine B 25,000 4,000 6,000 4 A- Draw cash flow diagram for each machine for one cycle of each project B- Draw cash flow diagram for each project considering the LCM life cycle (Hint: different project duration, need to have the LCM life cycle) C- Compare the machines to select best alternative one based on Present worth analysis method D- Repeat part B considering Future worth analysis
27.
Coffer Company is analyzing two potential investments. Project X Cost of machine Net cash flow: Year 1 Year 2 $ 85,470 Project Y $ 65,000 33,000 33,000 3,000 30,000 Year 3 Year 4 33,000 0 • 30,000 25,000 If the company is using the payback period méthod, and it requires a payback period of three years or less, which project(s) should be selected? Multiple Choice Project Y. Project X. Both X and Y are acceptable projects. Neither X nor Y is an acceptable project.
You are considering the following project. What is the NPV of the project? WACC of the project: 0.10 Revenue growth rate: 0.05 Tax rate: 0.40 Revenue for year 1: 13,000 Fixed costs for year 1: 3,000 variable costs (% of revenue): 0.30 project life: 3 years Economic life of equipment: 3 years Cost of equipment: 20,000 Salvage value of equipment: 4,000 Initial investment in net working capital: 2,000
7. What is the payback period? ?
Do not provide hand written solution
Coore Manufacturing has the following two possible projects. The required return is 12 percent. Year Project Y Project Z 0 -$27,500 -$55,000 1 13,500 19,500 234 2 11,900 26,000 3 14,300 17,500 9,900 24,000 a. What is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) b. What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. Which, if either, of the projects should the company accept? a. Project Y Project Z 1.38 ง b. Project Y 3 decimal places required. Project Z c. Accept project x
18. Occidental Oman is thinking about a project where the initial investment is RO 12000 and the total life of the project is 5 years. The project is expected to generate RO 3800 every year during the entire life of project. If the management keeps a standard of 3 year as pay back then in this case the decision will be __________. a. The project is not worth as cash flow is not significant b. None of the options c. The project will be rejected because the payback period is more d. The project will be accepted because the payback period is less
engineering economics
i need the answer quickly