Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
14th Edition
ISBN: 9780133507690
Author: Lawrence J. Gitman, Chad J. Zutter
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 10, Problem 10.4P
Long-term investment decision, payback method Bill Williams has the opportunity to invest in project A, which costs $9,000 today and promises to pay $2,200, $2,500, $2,500, $2,000, and $1,800 over the next 5 years. Or Bill can invest $9,000 in project B. which promises to pay $1,500, $1,500, $1,500, $3,500, and $4,000 over the next 5 years.
- a. How long will it take for Bill to recoup his initial investment in project A?
- b. How long will it take for Bill to recoup his initial investment in project B?
- c. Using the payback period, which project should Bill choose?
- d. Do you see any problems with his choice?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Long-term investment decision, payback method Personal Finance Problem Bill Williams has the opportunity to invest in project A that costs $6,200 today and promises to pay
$2,100, $2,500, $2,500, $2,000 and $1,700 over the next 5 years. Or, Bill can invest $6,200 in project B that promises to pay $1,600, $1,600, $1,600, $3,600 and $3,900 over the
next 5 years. (Hint: For mixed stream cash inflows, calculate cumulative cash inflows on a year-to-year basis until the initial investment is recovered.)
a. How long will it take for Bill to recoup his initial investment in project A?
b. How long will it take for Bill to recoup his initial investment in project B?
c. Using the payback period, which project should Bill choose?
d. Do you see any problems with his choice?
a. For Bill to recoup his initial investment in project A, it will take
years. (Round to two decimal places.)
Long-term investment decision, payback method Personal Finance Problem Bill Williams has the opportunity to invest in project A that costs $6,800 today and promises to pay $2,100, $2,500, $2,500, $2,000 and $1,800 over the next 5 years. Or, Bill can invest $6,800 in
project B that promises to pay $1,500, $1,500, $1,500, $3,500 and $3,900 over the next 5 years. (Hint: For mixed stream cash inflows, calculate cumulative cash inflows on a year-to-year basis until the initial investment is recovered.)
a. How long will it take for Bill to recoup his initial investment in project A?
b. How long will it take for Bill to recoup his initial investment in project B?
c. Using the payback period, which project should Bill choose?
d. Do you see any problems with his choice?
a. For Bill to recoup his initial investment in project A, it will take
years. (Round to two decimal places.)
C
Long-term investment decision, payback method Personal Finance Problem Bill Williams has the opportunity to invest in project A that costs
$5,100
today and promises to pay
$2,100,
$2,500,
$2,500,
$2,000
$1,900
over the next 5 years.
Or, Bill can invest
$5,100
in project B that promises to pay
$1,300,
$1,300,
$1,300,
$3,400
$3,900 over the next 5 years.
(Hint: For mixed stream cash inflows, calculate cumulative cash inflows on a year-to-year basis until the initial investment is recovered.)
a. How long will it take for Bill to recoup his initial investment in project A?
b. How long will it take for Bill to recoup his initial investment in project B?
c. Using the payback period, which project should Bill choose?
d. Do you see any problems with his choice?
Chapter 10 Solutions
Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
Ch. 10.1 - What is the financial managers goal in selecting...Ch. 10.2 - Prob. 1FOPCh. 10.2 - What is the payback period? How is it calculated?Ch. 10.2 - What weaknesses are commonly associated with the...Ch. 10.3 - How is the net present value (NPV) calculated for...Ch. 10.3 - Prob. 10.5RQCh. 10.3 - Prob. 10.6RQCh. 10.4 - Prob. 10.8RQCh. 10.4 - Prob. 10.9RQCh. 10.4 - Prob. 10.10RQ
Ch. 10.5 - Prob. 1FOECh. 10.5 - How is a net present value profile used to compare...Ch. 10.5 - Prob. 10.13RQCh. 10 - Prob. 1ORCh. 10 - Prob. 10.1STPCh. 10 - Elysian Fields Inc. uses a maximum payback period...Ch. 10 - Prob. 10.2WUECh. 10 - Prob. 10.3WUECh. 10 - Prob. 10.4WUECh. 10 - Prob. 10.5WUECh. 10 - Prob. 10.1PCh. 10 - Payback comparisons Nova Products has a 5-year...Ch. 10 - Prob. 10.3PCh. 10 - Long-term investment decision, payback method Bill...Ch. 10 - Prob. 10.5PCh. 10 - Prob. 10.6PCh. 10 - Prob. 10.7PCh. 10 - Prob. 10.8PCh. 10 - Prob. 10.9PCh. 10 - Prob. 10.10PCh. 10 - Prob. 10.11PCh. 10 - Prob. 10.12PCh. 10 - NPV and EVA A project costs 2,500,000 up front and...Ch. 10 - Prob. 10.14PCh. 10 - Prob. 10.15PCh. 10 - Prob. 10.16PCh. 10 - Prob. 10.17PCh. 10 - Prob. 10.18PCh. 10 - Prob. 10.19PCh. 10 - Prob. 10.20PCh. 10 - Prob. 10.21PCh. 10 - Prob. 10.22PCh. 10 - Prob. 10.23PCh. 10 - Prob. 10.24PCh. 10 - Prob. 10.25PCh. 10 - Integrative: Multiple IRRs Froogle Enterprises is...Ch. 10 - Integrative: Conflicting Rankings The High-Flying...Ch. 10 - ETHICS PROBLEM Diane Dennison is a financial...Ch. 10 - Spreadsheet Exercise The Drillago Company is...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Cash payback period for a service company Janes Clothing Inc. is evaluating two capital investment proposals for a retail outlet, each requiring an investment of 975,000 and each with a seven-year life and expected total net cash flows of 1,050,000. Location 1 is expected to provide equal annual net cash flows of 150,000, and Location 2 is expected to have the following unequal annual net cash flows: Determine the cash payback period for both location proposals.arrow_forwardLong-term investment decision, payback method Personal Finance Problem Bill Williams has the opportunity to invest in project A that costs $6,400 today and promises to pay $2,100, $2,600, $2,600, $2,000 $1,800 over the next 5 years. Or, Bill can invest $6,400 in project B that promises to pay $1,600, $1,600, $1,600, $3,600 $3,900 over the next 5 years. (Hint: For mixed stream cash inflows, calculate cumulative cash inflows on a year-to-year basis until the initial investment is recovered.) a. How long will it take for Bill to recoup his initial investment in project A? b. How long will it take for Bill to recoup his initial investment in project B?arrow_forwardConsider an investment project in which you invest $3,500 today in order to receive $525 at the end of each of the next 10 years. If the cost of capital is 12% per year, what is the IRR and should the project be accepted? 7.23%, accept project 7.23%, reject project 5.28%, accept project 5.28%, reject project 8.14%, reject project 8.14%, accept project a. b. C. d. e. O f.arrow_forward
- please help me numbers 1, 2, and 3, thank youarrow_forwardPlease answer fast please help arjentarrow_forwardCompute the payback statistic for Project A if the appropriate cost of capital is 8 percent and the maximum allowable payback period is four years. (Round your answer to 2 decimal places.) Project A Time: 0 1 2 3 4 5 Cash flow: −$1,300 $470 $570 $580 $360 $160 Payback: In years? Should the project be accepted or rejected?multiple choice accepted rejectedarrow_forward
- Calculate the IRR for the picture enclosedarrow_forwardneed answer for this pls help asaparrow_forwardInvestment Criteria. What is the NPV of a project that costs $250,000 and provides cash inflows of $50,000 annually for ten years and the discount rate is 10 percent? Should the project be accepted? Please show your workarrow_forward
- Which year do I use to divide 23,980 to get the project payback period?arrow_forwardChoosing between two projects with acceptable payback periods Shell Camping Gear, Ic., is considering two mutually exclusive projects. Each requires an initial investment of $100,000. John ShellI, president of the company, has set a maximum payback period of 4 years. The after-tax cash inflows associated with each project are shown in the following table: E. a. Determine the payback period of each project. b. Because they are mutually exclusive, Shell must choose one. Which should the company invest in? a. The payback period of project A is years. (Round to two decimal places.) The payback period of project B is years. (Round to two decimal places.) b. Because they are mutually exclusive, Shell must choose one. Using the payback period, which project should the company invest in? (Select the best answer below.) O Project B would be preferred over project A because the larger cash flows are in the early years of the project. Data Table O Project A would be preferred over project B…arrow_forwardPayback period, NPV, PI, and IRR calculations) You are considering a project with an initial cash outlay of $80,000 and expected free cash flows of $22,000at the end of each year for 5 years. The required rate of return for this project is 7 percent. a. What is the project's payback period? b. What is the project's NPV? c. What is the project's PI? d. What is the project's IRR?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Survey of Accounting (Accounting I)
Accounting
ISBN:9781305961883
Author:Carl Warren
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Capital Budgeting Introduction & Calculations Step-by-Step -PV, FV, NPV, IRR, Payback, Simple R of R; Author: Accounting Step by Step;https://www.youtube.com/watch?v=hyBw-NnAkHY;License: Standard Youtube License