(Payback and discounted payback period calculations) The Bar-None Manufacturing Co. manufactures fence panels used in cattle feed lots throughout the Midwest. Bar-None's management is considering three investment projects for next year but doesn't want to make any investment that requires more than three years to recover the firm's initial investment. The cash flows for the three projects (Project A, Project B, and Project C) are as follows: a. Given Bar-None's three-year payback period, which of the projects will qualify for acceptance? b. Rank the three projects using their payback period. Which project looks the best using this criterion? Do you agree with this ranking? Why or why not? c. If Bar-None uses a discount rate of 10.6 percent to analyze projects, what is the discounted payback period for each of the three projects? If the firm still maintains its three-year payback policy for the discounted payback. which projects should the firm undertake? Data table Year Project A Project B Project C 0 $(1,050) $(9,800) $(5,500) 1 530 4,500 1,500 2 350 3,500 1,500 3 170 3,500 3,500 4 60 3,500 3,500 5 490 3,500 3,500 (Click on the icon in order to copy its contents into a spreadsheet.) two
(Payback and discounted payback period calculations) The Bar-None Manufacturing Co. manufactures fence panels used in cattle feed lots throughout the Midwest. Bar-None's management is considering three investment projects for next year but doesn't want to make any investment that requires more than three years to recover the firm's initial investment. The cash flows for the three projects (Project A, Project B, and Project C) are as follows: a. Given Bar-None's three-year payback period, which of the projects will qualify for acceptance? b. Rank the three projects using their payback period. Which project looks the best using this criterion? Do you agree with this ranking? Why or why not? c. If Bar-None uses a discount rate of 10.6 percent to analyze projects, what is the discounted payback period for each of the three projects? If the firm still maintains its three-year payback policy for the discounted payback. which projects should the firm undertake? Data table Year Project A Project B Project C 0 $(1,050) $(9,800) $(5,500) 1 530 4,500 1,500 2 350 3,500 1,500 3 170 3,500 3,500 4 60 3,500 3,500 5 490 3,500 3,500 (Click on the icon in order to copy its contents into a spreadsheet.) two
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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Transcribed Image Text:(Payback and discounted payback period calculations) The Bar-None Manufacturing Co. manufactures fence
panels used in cattle feed lots throughout the Midwest. Bar-None's management is considering three investment
projects for next year but doesn't want to make any investment that requires more than three years to recover
the firm's initial
investment. The cash flows for the three projects (Project A, Project B, and Project C) are as follows:
a. Given Bar-None's three-year payback period, which of the projects will qualify for acceptance?
b. Rank the three projects using their payback period. Which project looks the best using this criterion? Do you
agree with this ranking? Why or why not?
c. If Bar-None uses a discount rate of 10.6 percent to analyze projects, what is the discounted payback period for
each of the three projects? If the firm still maintains its three-year payback policy for the discounted payback.
which projects should the firm undertake?
Data table
Year
Project A
Project B
Project C
0
$(1,050)
$(9,800)
$(5,500)
1
530
4,500
1,500
2
350
3,500
1,500
3
170
3,500
3,500
4
60
3,500
3,500
5
490
3,500
3,500
(Click on the icon in order to copy its contents into a spreadsheet.)
two
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