Each of the following situations is independent. Assume that all cash flows are after-tax cash flows. a.
Question:
Each of the following situations is independent. Assume that all cash flows are after-tax cash flows.
a. Kim Phyo has just invested $400,000 in a comic book store. She expects to receive a cash income of $120,000 per year from the investment.
b. Kaylin Rostov has just invested $1,400,000 in a new biomedical technology. She expects to receive the following cash flows over the next five years: $350,000, $490,000, $700,000, $420,000, and $280,000.
c. Kam Turay invested in a project that has a payback period of four years. The project brings in $960,000 per year.
d. Chew Hann invested $1,300,000 in a project that pays him an even amount per year for five years. The payback period is 2.5 years.
Required:
1. What is the payback period for Kim?
2. What is the payback period for Kaylin?
3. How much did Kam invest in the project?
4. How much cash does Chew receive each year?
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...
Step by Step Answer:
Cornerstones of Managerial Accounting
ISBN: 978-0176530884
2nd Canadian edition
Authors: Maryanne M. Mowen, Don Hanson, Dan L. Heitger, David McConomy, Jeffrey Pittman