ABC Manufacturing is considering two projects, Project X and Project Y Both projects require an initial investment of GBP 30,000 The following are the expected cash inflows Year Cash flows (Project X) Cash flows (Project Y) (Initial Investment) (30,000) (30,000) 1 10,000 15,000 2 10,000 10,000 3 5,000 15,000 4 5,000 10,000 a Calculate the payback period for both projects b Which project should ABC Manufacturing invest in if their payback period threshold is 3 years Justify your answer

The Answer is in the image, click to view ...

Question: ABC Manufacturing is considering two projects, Project X and Project Y. Both projects require an initial investment of GBP 30,000. The following are the expected

ABC Manufacturing is considering two projects, Project X and Project Y. Both projects require an initial investment of GBP 30,000. The following are the expected cash inflows:

Year	Cash flows (Project X)	Cash flows (Project Y)
(Initial Investment)	(30,000)	(30,000)
1	10,000	15,000
2	10,000	10,000
3	5,000	15,000
4	5,000	10,000

a. Calculate the payback period for both projects.

b. Which project should ABC Manufacturing invest in if their payback period threshold is 3 years? Justify your answer.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Accounting Questions!

Company ABC is evaluating two projects: Project A and Project B. Both projects require an initial investment of $1,000,000. Project A generates cash inflows of $200,000 per year for the next 7 years,...

Company XYZ has a net income of $1,000,000 and 500,000 outstanding shares. If the company's earnings per share (EPS) is $2, what is the company's price-to-earnings (P/E) ratio? A bond has a par...

XYZ Ltd. is considering two projects, Project X and Project Y, both requiring an initial investment of GBP 70,000. The projects have the following cash flows: Year Cash Flows (Project X) Cash Flows...

ABC Company is analyzing two projects - Project A and Project B. Each project requires an initial investment of $10,000 and has the following projected cash flows: For Project A net cash flows in...

A company is considering two mutually exclusive projects Adept and Boffo. Project Adept requires an initial investment of $100,000 and is expected to generate after-tax cash flows of $45,000 per year...

Testbank, Question 70 A company is considering two mutually exclusive projects Adept and Boffo. Project Adept requires an initial investment of $100,000 and is expected to generate after-tax cash...

A company is considering two mutually exclusive projects Adept and Boffo. Project Adept requires an initial investment of $ 1 0 0 , 0 0 0 and is expected to generate after - tax cash flows of $ 4 5 ,...

A beam of monochromatic red light with a wavelength of 700 nm in air travels in water. (a) What is the wavelength in water? (b) Does a swimmer underwater observe the same color or a different color...

Use the following to answer the question: What is the dividend per share? XYZ Co. 78.45 Prev Close: Open: Bid: Ask: 1y Target Est: Beta: Next Earnings: 3.55 74.9 $78.57 N/A N/A 87.86 1.12 1-May-21...

Assume that you are working with the results from Problem 11.29, and SSA = 120, SSB = 110, SSE = 270, and SST = 540. a. What is SSAB? b. What are MSA and MSB? c. What is MSAB? d. What is MSE?

The force constant of a massless spring is 2 5 . 0 N / m . A mass of 0 . 4 5 kg is oscillating in simple harmonic motion at the end of the spring

Calculating Flotation Costs The St. Anger Corporation needs to raise $45 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to...

Price Dilution Raggio, Inc., has 135,000 shares of stock outstanding. Each share is worth $75, so the companys market value of equity is $10,125,000. Suppose the firm issues 30,000 new shares at the...

IPO Underpricing The Woods Co. and the Garcia Co. have both announced IPOs at $40 per share. One of these is undervalued by $9, and the other is overvalued by $4, but you have no way of knowing which...