The selection of the investment in the product using pay-back period. Introduction: Pay-back period (PBP) : It is one of the methods of capital budgeting that helps evaluate the time period in which the amount of initial investment is recovered. The formula for the calculation of the PBP is shown below: Pay-Back Period = Year + Initial Investment − Cumulative Cash Flow Cash FLow Where, Year = The year in which cumulative cash flow is near and less than the initial investment. Initial investment = The amount of the investment. Cumulative cash flow = The cumulative cash flow which is near and less than the initial investment. Cash flow = The cash flow of the next year from the â€œYearâ€� used for the calculation.

Question

Jeff Krause purchased 1,000 shares of a speculative stock in January for $1.89 per share. Six months later, he sold them for $9.95 per share. He uses an online broker that charges him $10.00 per trade. What was Jeff's annualized HPR on this investment? Jeff's annualized HPR on this investment is %. (Round to the nearest whole percent.)

Answer 1

Question

Chapter 12, Problem 6P

Summary Introduction

To calculate: The selection of the investment in the product using pay-back period.

Introduction:

Pay-back period (PBP):

It is one of the methods of capital budgeting that helps evaluate the time period in which the amount of initial investment is recovered. The formula for the calculation of the PBP is shown below:

Pay-Back Period=Year+Initial Investment−Cumulative Cash FlowCash FLow

Where,

Year = The year in which cumulative cash flow is near and less than the initial investment.

Initial investment = The amount of the investment.

Cumulative cash flow = The cumulative cash flow which is near and less than the initial investment.

Cash flow = The cash flow of the next year from the â€œYearâ€� used for the calculation.

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