Canada Golf Club (CGC) is considering three independent projects for July 2021 tournament. The three projects are project A, project B and project C. Given the following cash flow information, calculate the payback period for each. If CGC requires a 3-year payback before an investment can be made, which project(s) would be accepted? 2. Cricket World Cup (CWC) is considering a project proposal which requires an initial investment of $72,625 and it is expected to have net cash flows of $15,000 per year for 8 years. The firm cash flows are discounted at a rate of 12 percent. a. What is the project’s Net Present Value (NPV)? (Rounded to 2 decimal places) b. What is the project’s discounted payback period? (Rounded to 2 decimal places) 3. Pharmos Incorporated is a Pharmaceutical Company which is considering investing in a new production line of portable electrocardiogram (ECG) machines for its clients who suffer from cardio vascular diseases. The company has to invest in equipment which cost $2,500,000 and falls within a MARCS depreciation of 5-years, and is expected to have a scrape value of $200,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Pharmos Incorporated expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new product line. Expected annual sales for the ECG machines in the first three years are $1,200,000 and $850,000 in the following two years. The variable costs of production are projected to be $267,000 per year in years one to three and $375,000 in years four and five. Fixed overhead is $180,000 per year over the life of the project. Year Project A ($) Project B ($) Project C ($) 0 (Investment) -1,000 -$10,000 -$5,000 1 600 4,000 2,000 2 300 3,000 1,000 3 200 2,000 2,000 4 100 2,000 1,000 5 500 4,000 2,000
Canada Golf Club (CGC) is considering three independent projects for July 2021 tournament. The
three projects are project A, project B and project C. Given the following cash flow information,
calculate the payback period for each. If CGC requires a 3-year payback before an investment
can be made, which project(s) would be accepted?
2. Cricket World Cup (CWC) is considering a project proposal which requires an initial investment
of $72,625 and it is expected to have net cash flows of $15,000 per year for 8 years. The firm
cash flows are discounted at a rate of 12 percent.
a. What is the project’s
b. What is the project’s discounted payback period? (Rounded to 2 decimal places)
3. Pharmos Incorporated is a Pharmaceutical Company which is considering investing in a new
production line of portable electrocardiogram (ECG) machines for its clients who suffer from
cardio vascular diseases. The company has to invest in equipment which cost $2,500,000 and falls
within a MARCS
the end of the project. Other than the equipment, the company needs to increase its cash and
cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts
receivable by $250,000 and increase account payable by $50,000 at the beginning of the project.
Pharmos Incorporated expect the project to have a life of five years. The company would have to
pay for transportation and installation of the equipment which has an invoice price of $450,000.
The company has already invested $75,000 in Research and Development and therefore expects
a positive impact on the demand for the new product line. Expected annual sales for the ECG
machines in the first three years are $1,200,000 and $850,000 in the following two years. The
variable costs of production are projected to be $267,000 per year in years one to three and
$375,000 in years four and five. Fixed overhead is $180,000 per year over the life of the project.
Year Project A ($) Project B ($) Project C ($)
0 (Investment) -1,000 -$10,000 -$5,000
1 600 4,000 2,000
2 300 3,000 1,000
3 200 2,000 2,000
4 100 2,000 1,000
5 500 4,000 2,000
Trending now
This is a popular solution!
Step by step
Solved in 6 steps
