Brenda and Eddie are worried about the length of time it will take for the cash...

 

Transcribed Image Text:

Brenda and Eddie are worried about the length of time it will take for the cash flows from the Parkway Diner to repay their total investment of £500,000 (£350,000 to take-over the business and £150,000 to refurbish it). Cash flow projections from the project are reproduced below. Year 1 234 50 60 2 3 6 Net Cash flows (£) 70,000 70,000 80,000 100,000 100,000 120,000 After the sixth year, Brenda and Eddie confidently expect that they could sell the business for £350,000. Required Calculate the payback period for the project, and advise Brenda & Eddie whether they are right to be concerned. Brenda and Eddie are worried about the length of time it will take for the cash flows from the Parkway Diner to repay their total investment of £500,000 (£350,000 to take-over the business and £150,000 to refurbish it). Cash flow projections from the project are reproduced below. Year 1 234 50 60 2 3 6 Net Cash flows (£) 70,000 70,000 80,000 100,000 100,000 120,000 After the sixth year, Brenda and Eddie confidently expect that they could sell the business for £350,000. Required Calculate the payback period for the project, and advise Brenda & Eddie whether they are right to be concerned.

Answer rating: 100% (QA)

A Year B 0 1 2 3 4 5 6 Cash flow 1 2 3 4 5 6 7 8 9 10 Payback period 5 80000 11 500000 70... View the full answer