Cash Payback Method This method identifies how long it will take (in years) to recover the initial investment V. The particulars of the method vary depending on whether the cash flows from an investment are even or uneven. Cash Payback Method (Even cash flows) Suppose that a particular investment required an up-front capital outlay of $100,000. This investment is expected to yield cash flows of $15,000 per year for 10 years. What is the payback period for this investment? If required, round your answer to two decimal places. Cash Payback Period - years

Cash Payback Method This method identifies how long it will take (in years) to recover the initial investment V. The particulars of the method vary depending on whether the cash flows from an investment are even or uneven. Cash Payback Method (Even cash flows) Suppose that a particular investment required an up-front capital outlay of $100,000. This investment is expected to yield cash flows of $15,000 per year for 10 years. What is the payback period for this investment? If required, round your answer to two decimal places. Cash Payback Period - years

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Valuation of cash flow streams Question 1 Suppose that you are considering an investment product that promises to pay $2,000 at the end of each year for the next five years. Assume that a discount rate of 12% is applicable to similar investment alternatives. Answer questions a) and b) below. a) How much would you be willing to pay for the investment product? ( Lecture notes pp.9-11) Answer (show the steps/ calculation toward your results): b) Consider another investment product that promises to pay $1,000 every six months for the next five years, with the first payment to be made in six months from today. Applying the same discount rate, how much would you pay for this product? (See p.15 for a monthly case.) Answer (show the steps/calculation toward your results):
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 −$350,000 −$35,000 1 25,000 17,000 2 70,000 11,000 3 70,000 17,000 4 430,000 11,000 Assume you require a 15 percent return on your investment and a payback of 4 years. a. If you apply the discounted payback criterion, which investment will you choose? Why? b. If you apply the NPV criterion, which investment will you choose? Why? c. Based on your answers in (a) and (b), what you can say anything about the IRR of both projects? which project will you finally choose? Why?
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The cash flow diagram below shows the net cash generated (A) every year with initial (1) investment requirement for a certain project whose lifetime is n=8 years with negligible (i.e. zero) salvage value at end of life. It is known that a simple payback period is three (3) years. What is the implied minimum acceptable rate of return (MARR) given this information? A >H I yrs.
c. A company is planning to invest in a project over a 5-year period, but wants to know its financial implications. It expects the cash in-flow return on the investment to steadily increase over the 5 years. Using the information below, help determine the Total Net Cash Flows, the Net Present Value and the estimated Payback Period. Note: Estimate the payback period to the nearest year. Discount Rate 12% Investment Project Cash Flow Total Net Cash Flow Initial Investment $ (5,000) ? Year 1 $ 800 ? Year 2 $ 900 ? Year 3 $ 1,500 ? Year 4 $ 1,800 ? Year 5 $ 3,200 ? NPV of investment ? Estimated Payback Period
(Present value of annuities and complex cash flows) You are given three investment alternatives to analyze. The cash flows from these three investments are as follows: @ End of Year 1 W 5 2 3 4 12 5 s damaged 30 6 X 7 8 3 a. What is the present value of investment A at an annual discount rate of 21 percent? $(Round to the nearest cent.) b. What is the present value of investment B at an annual discount rate of 21 percent? $(Round to the nearest cent.) c. What is the present value of investment C at an annual discount rate of 21 percent? (Round to the nearest cent.) 80 F3 E A $11,000 11,000 11,000 11,000 11,000 D C $ 4 DDD DOD F4 R Investment B F 1 $11,000 11,000 11,000 11,000 % 5 V is FS T G A 6 C $16,000 B 48,000 MacBook Air F6 Y & 7 H 44 F7 U N * CO 8 J DII FA 1 ( M 9 K MOSISO 19 O 1 0 V I 4 F10 11 P > command 4 ● FII + B = { [ I Next F12 .. ? option
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Compute the payback period. (Show your solution)
The number of years it takes to recapture a project`s initial outlay from the discounted free cash flows is called as the pay back period Select one: True False