CNCT ACC CORPORATE FINANCE
12th Edition
ISBN: 9781264604081
Author: Ross
Publisher: MCGRAW-HILL HIGHER EDUCATION
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 5, Problem 1CQ
Payback Period and
Expert Solution & Answer
Summary Introduction
To explain: Algebraic sign of NPV and if discounted payback period is less than the project life, then the effect of it on NPV.
Net Present Value (NPV):
Net present value refers to the present value of all the future cash flows that are adjusted according to the time value of money.
Answer to Problem 1CQ
Algebraic sign of NPV is positive in both cases.
Explanation of Solution
When a payback period is smaller than the life of a project, then the net present value (NPV) will be positive. It is because the company will be earning even after they earned back their investment; likewise, in discounted payback period too.
In certain cases where cost of capital is high, it will reduce NPV and make it negative. However, it does not apply in the current situation.
Conclusion
Hence, the sign of NPV in both cases will be positive.
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Could you please help explain what is the research assumptions, research limitations, research delimitations and their intent?
How the research assumptions, research limitations can shape the study design and scope?
How the research delimitations could help focus the study and ensure its feasibility?
What are the relationship between biblical principles and research concepts such as reliability and validity?
What is the concept of the working poor ? Introduction form. Explain.
What is the most misunderstanding of the working poor? Explain.
Chapter 5 Solutions
CNCT ACC CORPORATE FINANCE
Ch. 5 - Payback Period and Net Present Value If a project...Ch. 5 - Net Present Value Suppose a project has...Ch. 5 - Comparing Investment Criteria Define each of the...Ch. 5 - Payback and Internal Rate of Return A project has...Ch. 5 - Prob. 5CQCh. 5 - Capital Budgeting Problems What are some of the...Ch. 5 - Prob. 7CQCh. 5 - Prob. 8CQCh. 5 - Net Present Value versus Profitability Index...Ch. 5 - Internal Rate of Return Projects A and B have the...
Ch. 5 - Net Present Value You are evaluating Project A and...Ch. 5 - Modified Internal Rate of Return One of the less...Ch. 5 - Net Present Value It is sometimes stated that the...Ch. 5 - Prob. 14CQCh. 5 - Prob. 1QAPCh. 5 - Prob. 2QAPCh. 5 - Prob. 3QAPCh. 5 - Prob. 4QAPCh. 5 - Prob. 5QAPCh. 5 - Prob. 6QAPCh. 5 - Prob. 7QAPCh. 5 - Prob. 8QAPCh. 5 - Prob. 9QAPCh. 5 - Prob. 10QAPCh. 5 - NPV versus IRR Consider the following cash flows...Ch. 5 - Prob. 12QAPCh. 5 - Prob. 13QAPCh. 5 - Prob. 14QAPCh. 5 - Prob. 15QAPCh. 5 - Comparing Investment Criteria Consider the...Ch. 5 - Prob. 17QAPCh. 5 - Comparing Investment Criteria Consider the...Ch. 5 - Prob. 19QAPCh. 5 - Prob. 20QAPCh. 5 - MIRR Suppose the company in the previous problem...Ch. 5 - Prob. 22QAPCh. 5 - Prob. 23QAPCh. 5 - Prob. 24QAPCh. 5 - Prob. 25QAPCh. 5 - Prob. 26QAPCh. 5 - Prob. 27QAPCh. 5 - Prob. 28QAPCh. 5 - Prob. 29QAPCh. 5 - Prob. 30QAPCh. 5 - Construct a spreadsheet to calculate the payback...Ch. 5 - Based on your analysis, should the company open...Ch. 5 - Prob. 3MC
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
- Problem Three (15 marks) You are an analyst in charge of valuing common stocks. You have been asked to value two stocks. The first stock NEWER Inc. just paid a dividend of $6.00. The dividend is expected to increase by 60%, 45%, 30% and 15% per year, respectively, in the next four years. Thereafter, the dividend will increase by 4% per year in perpetuity. Calculate NEWER’s expected dividend for t = 1, 2, 3, 4 and 5. The required rate of return for NEWER stock is 14% compounded annually. What is NEWER’s stock price? The second stock is OLDER Inc. OLDER Inc. will pay its first dividend of $10.00 three (3) years from today. The dividend will increase by 30% per year for the following four (4) years after its first dividend payment. Thereafter, the dividend will increase by 3% per year in perpetuity. Calculate OLDER’s expected dividend for t = 1, 2, 3, 4, 5, 6, 7 and 8. The required rate of return for OLDER stock is 16% compounded annually. What is OLDER’s stock price? Now assume that…arrow_forwardProblem Three (15 marks) You are an analyst in charge of valuing common stocks. You have been asked to value two stocks. The first stock NEWER Inc. just paid a dividend of $6.00. The dividend is expected to increase by 60%, 45%, 30% and 15% per year, respectively, in the next four years. Thereafter, the dividend will increase by 4% per year in perpetuity. Calculate NEWER’s expected dividend for t = 1, 2, 3, 4 and 5. The required rate of return for NEWER stock is 14% compounded annually. What is NEWER’s stock price? The second stock is OLDER Inc. OLDER Inc. will pay its first dividend of $10.00 three (3) years from today. The dividend will increase by 30% per year for the following four (4) years after its first dividend payment. Thereafter, the dividend will increase by 3% per year in perpetuity. Calculate OLDER’s expected dividend for t = 1, 2, 3, 4, 5, 6, 7 and 8. The required rate of return for OLDER stock is 16% compounded annually. What is OLDER’s stock price? Now assume that…arrow_forwardYour father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $45,000 has today. (The real value of his retirement income will decline annually after he retires.) His retirement income will begin the day he retires, 10 years from today, at which time he will receive 24 additional annual payments. Annual inflation is expected to be 4%. He currently has $240,000 saved, and he expects to earn 8% annually on his savings. Required annuity payments Retirement income today $45,000 Years to retirement 10 Years of retirement 25 Inflation rate 4.00% Savings $240,000 Rate of return 8.00% Calculate value of…arrow_forward
- Problem Three (15 marks) You are an analyst in charge of valuing common stocks. You have been asked to value two stocks. The first stock NEWER Inc. just paid a dividend of $6.00. The dividend is expected to increase by 60%, 45%, 30% and 15% per year, respectively, in the next four years. Thereafter, the dividend will increase by 4% per year in perpetuity. Calculate NEWER’s expected dividend for t = 1, 2, 3, 4 and 5. The required rate of return for NEWER stock is 14% compounded annually. What is NEWER’s stock price? The second stock is OLDER Inc. OLDER Inc. will pay its first dividend of $10.00 three (3) years from today. The dividend will increase by 30% per year for the following four (4) years after its first dividend payment. Thereafter, the dividend will increase by 3% per year in perpetuity. Calculate OLDER’s expected dividend for t = 1, 2, 3, 4, 5, 6, 7 and 8. The required rate of return for OLDER stock is 16% compounded annually. What is OLDER’s stock price? Now assume that…arrow_forwardProblem Three (15 marks) You are an analyst in charge of valuing common stocks. You have been asked to value two stocks. The first stock NEWER Inc. just paid a dividend of $6.00. The dividend is expected to increase by 60%, 45%, 30% and 15% per year, respectively, in the next four years. Thereafter, the dividend will increase by 4% per year in perpetuity. Calculate NEWER’s expected dividend for t = 1, 2, 3, 4 and 5. The required rate of return for NEWER stock is 14% compounded annually. What is NEWER’s stock price? The second stock is OLDER Inc. OLDER Inc. will pay its first dividend of $10.00 three (3) years from today. The dividend will increase by 30% per year for the following four (4) years after its first dividend payment. Thereafter, the dividend will increase by 3% per year in perpetuity. Calculate OLDER’s expected dividend for t = 1, 2, 3, 4, 5, 6, 7 and 8. The required rate of return for OLDER stock is 16% compounded annually. What is OLDER’s stock price? Now assume that…arrow_forwardProblem Three (15 marks) You are an analyst in charge of valuing common stocks. You have been asked to value two stocks. The first stock NEWER Inc. just paid a dividend of $6.00. The dividend is expected to increase by 60%, 45%, 30% and 15% per year, respectively, in the next four years. Thereafter, the dividend will increase by 4% per year in perpetuity. Calculate NEWER’s expected dividend for t = 1, 2, 3, 4 and 5. The required rate of return for NEWER stock is 14% compounded annually. What is NEWER’s stock price? The second stock is OLDER Inc. OLDER Inc. will pay its first dividend of $10.00 three (3) years from today. The dividend will increase by 30% per year for the following four (4) years after its first dividend payment. Thereafter, the dividend will increase by 3% per year in perpetuity. Calculate OLDER’s expected dividend for t = 1, 2, 3, 4, 5, 6, 7 and 8. The required rate of return for OLDER stock is 16% compounded annually. What is OLDER’s stock price? Now…arrow_forward
- You are considering a 10-year, $1,000 par value bond. Its coupon rate is 11%, and interest is paid semiannually. Bond valuation Years to maturity 10 Par value of bond $1,000.00 Coupon rate 11.00% Frequency interest paid per year 2 Effective annual rate 8.78% Calculation of periodic rate: Formulas Nominal annual rate #N/A Periodic rate #N/A Calculation of bond price: Formulas Number of periods #N/A Interest rate per period 0.00% Coupon payment per period #N/A Par value of bond $1,000.00 Price of bond #N/Aarrow_forwardHow much do investor psychology and market sentiment play into stock price movements? Do these emotional reactions having a bigger impact on short-term swings, or do they also shape long-term trends in a meaningful way?arrow_forwardExplain The business of predatory tax return preparation, including: How they deceive the working poor,The marketing tactics the preparers use, and Other than paying high fees, what negative impact can the use of these unqualified and unregulated preparers have on the taxpayer?arrow_forward
- Explain the changes in tax return preparation you would like to see in Alabama, based on what has been successful in other states.arrow_forwardExplain the understanding (or misunderstanding) of the working poor with tax return preparation within one page report.arrow_forwardExplain the regulations or requirements for tax return preparers in Alabama.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,
Survey of Accounting (Accounting I)
Accounting
ISBN:9781305961883
Author:Carl Warren
Publisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
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