6. The payback period The payback method helps firms establish and identify a maximum acceptable payback...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
6. The payback period The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Cold Goose Metal Works Inc.: Cold Goose Metal Works Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Delta's expected future cash flows. To answer this question, Cold Goose's CFO has asked that you compute the project's payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year. Complete the following table and compute the project's conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer.) Year 0 Year 1 Expected cash flow -$6,000,000 $2,400,000 Year 2 $5,100,000 Year 3 $2,100,000 Cumulative cash flow $ $ $ Conventional payback period: years The conventional payback period ignores the time value of money, and this concerns Cold Goose's CFO. He has now asked you to compute Delta's discounted payback period, assuming the company has a 7% cost of capital. Complete the following table and perform any necessary calculations. Round the discounted cash flow values to the nearest whole dollar, and the discounted payback period to two decimal places. For full credit, complete the entire table. (Note: If your answer is negative, be sure to use a minus sign in your answer.) 6. The payback period The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Cold Goose Metal Works Inc.: Cold Goose Metal Works Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Delta's expected future cash flows. To answer this question, Cold Goose's CFO has asked that you compute the project's payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year. Complete the following table and compute the project's conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer.) Year 0 Year 1 Expected cash flow -$6,000,000 $2,400,000 Year 2 $5,100,000 Year 3 $2,100,000 Cumulative cash flow $ $ $ Conventional payback period: years The conventional payback period ignores the time value of money, and this concerns Cold Goose's CFO. He has now asked you to compute Delta's discounted payback period, assuming the company has a 7% cost of capital. Complete the following table and perform any necessary calculations. Round the discounted cash flow values to the nearest whole dollar, and the discounted payback period to two decimal places. For full credit, complete the entire table. (Note: If your answer is negative, be sure to use a minus sign in your answer.)
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
A monatomic ideal gas that is initially at a pressure of 1.50 X 105 Pa and has a volume of 0.0800 m' is compressed adiabatically to a volume of 0.0400 m3. (a) What is the final pressure? (b) How much...
-
What are the primary advantages of filing a consolidated tax return?
-
Prove Markov's Inequality: If X is any random variable and a > 0, then Pr( |X| a) E( |X| )/a. Show how this inequality can be applied to Theorems 5.2 and 5.3.
-
Smith \& Sons reports interest expense of \(\$ 90,000\) on its income statement. The beginning and ending balances for interest payable reported on its balance sheet are \(\$ 15,000\) and \(\$...
-
The following information is available for Kelsey Corporation for the year ended December 31, 2012: Sales $800,000; Other revenues and gains $92,000; Operating expenses $110,000; Cost of goods sold...
-
5. What is 1619b? Protection against losing an SSI check, even if earnings go above SGA A way to get back Medicaid quickly if you lose it due to increased assets as an SSI recipient, once your assets...
-
Tax is a tax accounting practice with partners and staff members. Each billable hour of partner time has a budgeted price of $580 and a budgeted variable cost of $290. Each billable hour of staff...
-
Determine Net income for tax purposes based on the below criteria and any carry forward amounts? T4 Income $75,000 Business Loss $15,000 Taxable Capital Gains $5,000 Allowable Capital Losses $12,000...
-
Your firm uses the perpetual inventory system. Journalize the following transactions using these accounts: Cash, Accounts Receivable/Josti, Merchandise Inventory, Accounts Payable/ CCM, Sales, Sales...
-
Dakota Company experienced the following events during Year 2. 1. Acquired $25,000 cash from the issue of common stock. 2. Paid $20,000 cash to purchase land. 3. Borrowed $20,000 cash. 4. Provided...
-
Sammy's Pizza opened on January 1, Year 1. Sammy's reported the following for cash revenues and cash expenses for the Years 1 to 3: Year Year 1 Year 2 Year 3 Required Cash Revenues Cash Expenses...
-
Kretsmart has significant influence by owning 40,000 of the 100,000 outstanding shares of Jaunty Coffee Co. W common stock. During the current year, Jaunty Coffee Co. earns $640,000 and pays cash...
-
Q. In a detail analytical essay explain the Monetary Policy Framework of Pakistan w.r.t its ultimate goal s, nominal anchor and operational targets . Mention specifically, which monetary policy...
-
Suppose you won a financial literacy competition and are given FJS10000 to invest, with the condition that investment can be done either in, i) Invest in Unit trust of Fiji or Invest in Fijian...
-
The weekly payroll for employees of Ryan Company, who work a five-day week, amounts to \(\$ 20,000\). All employees are paid up-to-date at the close of business each Friday. If December 31 falls on...
-
At year-end the adjusting entry to reduce the Unexpired Insurance account by the amount of insurance premium applicable to the current period was accidentally omitted. Which items in the income...
-
Do all transactions involving revenue or expenses require adjusting entries at the end of the accounting period? If not, what is the distinguishing characteristic of those transactions that do...
Study smarter with the SolutionInn App