Question

An investment of $100,000 will begin returning $11,600 annually at the end of the second year and it will continue at that rate for 10 years. If there is no cash inflow in the first year, what is its payback period?
A. 10.6 years
B. 9.9 years
C. 9.6 years
D. 9.2 years
E. 8.9 years

Simply Shoes, Inc. is evaluating an expansion that will cost $1 million and is expected to generate the following cash flows: year 1: – $350,000; year 2: +$450,000; year 3: +$675,000; and year 4: +$800,000.
What is the payback period?
A. 3.1 years
B. 3.3 years
C. 3.4 years
D. 3.7 years
E. 4.0 years

Ace Transport is considering the purchase of a new $140,000 truck. If the company expects the cash inflows to be $35,000 after the first year, $52,000 after the second year, $64,000 after the third year, and $48,000 after the fourth year, what is the NPV if the cost of capital is 8.5%?
A. $21,171
B. $32,139
C. $53,874
D. $107,458
E. $118,426

Answer 1

1) Calculation of Payback period
Time	Amount	Cumulative
-	(1,00,000.00)	(1,00,000.00)
1.00	-	(1,00,000.00)
2.00	11,600.00	(88,400.00)
3.00	11,600.00	(76,800.00)
4.00	11,600.00	(65,200.00)
5.00	11,600.00	(53,600.00)
6.00	11,600.00	(42,000.00)
7.00	11,600.00	(30,400.00)
8.00	11,600.00	(18,800.00)
9.00	11,600.00	(7,200.00)
10.00	11,600.00	4,400.00
11.00	11,600.00
PBP= 9+7200/11600
Payback period= 9.62 years
So correct answer is C) 9.6 years
2) Calculation of Payback period
Time	Amount	Cumulative
-	(10,00,000.00)	(10,00,000.00)
1.00	(3,50,000.00)	(13,50,000.00)
2.00	4,50,000.00	(9,00,000.00)
3.00	6,75,000.00	(2,25,000.00)
4.00	8,00,000.00	5,75,000.00
PBP= 3+225000/800000
Payback period= 3.28 years
So correct answer is B) 3.3 years
3) Statement showing NPV
Particulars	Time	PVf 8.5%	Amount	PV
Cashoutflow	-	1.0000	(1,40,000.00)	(1,40,000.00)
Cash Flows	1.00	0.9217	35,000.00	32,258.06
Cash Flows	2.00	0.8495	52,000.00	44,171.67
Cash Flows	3.00	0.7829	64,000.00	50,106.12
Cash Flows	4.00	0.7216	48,000.00	34,635.57
NPV				21,171.42
So correct answer is A) $21171