Masego Pty Ltd considers buying a Truck as the business expands. They are considering between buying Truck Y or Truck Z. They will be spending P140 000 on Truck Y and P160 000 on Truck Z. The discounting factor for the above trucks is 16%. The cash inflows and outflows are shown below: Truck Y Truck Z Net cash flow Net cash flow Year 0 (140000) (160000) 1 50000 85000 2 60000 90000 3 50000 75000 4 40000 65000 a) Calculate the payback period for each truck. Explain which truck the business should buy and why. b) Calculate the discounted payback for each truck. c) Determine the Net Present Value for each truck. d) Calculate the profitability index for each truck. e) Describe five advantages of the NPV method of capital budgeting
Masego Pty Ltd considers buying a Truck as the business expands. They are considering between buying Truck Y or Truck Z. They will be spending P140 000 on Truck Y and P160 000 on Truck Z. The discounting factor for the above trucks is 16%. The cash inflows and outflows are shown below: Truck Y Truck Z Net cash flow Net cash flow Year 0 (140000) (160000) 1 50000 85000 2 60000 90000 3 50000 75000 4 40000 65000 a) Calculate the payback period for each truck. Explain which truck the business should buy and why. b) Calculate the discounted payback for each truck. c) Determine the Net Present Value for each truck. d) Calculate the profitability index for each truck. e) Describe five advantages of the NPV method of capital budgeting
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Masego Pty Ltd considers buying a Truck as the business expands. They are considering between buying Truck Y or Truck Z. They will be spending P140 000 on Truck Y and P160 000 on Truck Z. The discounting factor for the above trucks is 16%. The
|
|
Truck Y |
Truck Z |
|
|
Net cash flow |
Net cash flow |
|
Year 0 |
(140000) |
(160000) |
|
1 |
50000 |
85000 |
|
2 |
60000 |
90000 |
|
3 |
50000 |
75000 |
|
4 |
40000 |
65000 |
a) Calculate the payback period for each truck. Explain which truck the business should buy and
why.
b) Calculate the discounted payback for each truck.
c) Determine the
d) Calculate the profitability index for each truck.
e) Describe five advantages of the NPV method of capital budgeting.
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