Requirement 1:
To compute:
Payback period of Investment
Requirement 1:
Answer to Problem 18QS
Solution:
Payback period of Investment = 5 years
Explanation:
Payback period of the investment is calculated as under −
Given,
- Initial investment = $ 80 million
- Annual net
cash flows = $ 16 million
Explanation of Solution
Given,
Initial investment = $ 80 million
Total present value of cash inflows will be calculated as under −
Now, for present value of cash inflows −
Given −
- Annual net
cash inflow = $ 16 million - Number of years = 8 years
- Interest rate or required rate = 8% Total present value of cash inflows =
Initial investment = $ 80 million
Total present value of cash inflows = $ 91.952 million
Thus,the payback period of the investment = 5 years.
---->
Requirement 2:
To compute:
Net present value of the investment.
Requirement 2:
Answer to Problem 18QS
Solution:
Net present value of the investment = $11.952 million
Explanation of Solution
Given,
Initial investment = $ 80 million
Total present value of cash inflows will be calculated as under −
Now, for present value of cash inflows −
Given −
- Annual net cash inflow = $ 16 million
- Number of years = 8 years
- Interest rate or required rate = 8% Total present value of cash inflows =
Net present value of the investment will be calculated as under −
Initial investment = $ 80 million
Total present value of cash inflows = $ 91.952 million
Thus, the net present value of the investment = $ 11.952 million.
Note −The following PVAF table has been used for referring PVAF @ 8 % for 8 years.
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Chapter 26 Solutions
FUNDAMENTAL ACCOUNTING PRINCIPLES
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