Ejercicio $7$

Cash flow versus earnings (1012-2) Payback method (1-012-3) Payback method (L012-3) 5 5. 6. 7. A1 Quick, the president of a New York Stock Exchangelisted firm, is very short- term oriented and interested in the immediate consequences of his decisions. Assume a project that will provide an increase of $2 million in cash flow because of favorable tax consequences, but carries a two-cent decline in earnings per share because of a write-off against first-quarter earnings. What decision might Mr. Quick make? Assume a $250,000 investment and the following cash flows for two products: Year Product X $90,000 90,000 60,000 20,000 Product Y $50,000 80,000 60,000 70,000 Which alternatives would you select under the payback method? Assume a $40,000 investment and the following cash flows for two alternatives: Year Investment X $ 6,000 8,000 9,000 17,000 20,000 Investment Y $15,000 20,000 10,000