Question

In: Finance

The Dammon Corp. has the following investment opportunities: Machine A Machine B Machine C ($10,000 cost)...

The Dammon Corp. has the following investment opportunities:

Machine A Machine B Machine C
($10,000 cost) ($22,500 cost) ($35,500 cost)
Inflows Inflows Inflows
year 1 $ 6,000 year 1 $ 12,000 year 1 $ -0-
year 2 3,000 year 2 7,500 year 2 30,000
year 3 3,000 year 3 1,500 year 3 5,000
year 4 -0- year 4 1,500 year 4 20,000

Under the payback method and assuming these machines are mutually exclusive, which machine(s) would Dammon Corp. choose?

Multiple Choice

  • Machine A

  • Machine B

  • Machine C

  • Machine A and B

Solutions

Expert Solution

Machine A

Payback period= full years until recovery + unrecovered cost at the start of the year/cash flow during the year

Payback period= 2 years + ($10,000 – $9,000)/ $3,000

                              = 2 years + $1,000/ $3,000

                              = 2 years + 0.33

                              = 2.33 years.

Machine B

Payback period= $12,000 + $7,500 + $1,500 + $1,500 = $22,500

                              = 4 years

Machine C

Payback period= 3 years + ($35,500 – $35,000)/ $20,000

                              = 3 years + 500/ 20,000

                              = 3 years + 0.025

                              = 3.025 years.

Dammon corp would choose machine A since it has the lowest payback period.

Hence, the answer is option a.

In case of any query, kindly comment on the solution.


Related Solutions

The Dammon Corp. has the following investment opportunities: Machine A Machine B Machine C In. Inv....
The Dammon Corp. has the following investment opportunities: Machine A Machine B Machine C In. Inv. (10,000) (22,500) (35,500) years Inflows Inflows Inflows 1 6,000 14,000 - 2 2,900 7,500 35,000 3 3,500 5,000 6,000 4 - 1,500 20,000 Under the payback method and assuming these machines are mutually exclusive, which machine(s) would Dammon Corp. choose? Seleccione una: Machines A and C Machine B Machine C Machines B and C Machine A
8. Dammon Corp. has the following investment opportunities: Year Machine A ($15,000) Machine B ($22,500) Machine...
8. Dammon Corp. has the following investment opportunities: Year Machine A ($15,000) Machine B ($22,500) Machine C ($37,5000) Inflows: Inflows: Inflows: 1 $6,000 $12,000 $0 2 9,000 12,000 30,000 3 3,000 10,500 30,000 4 0 10,500 15,000 5 0 0 15,000 Under the payback period and assuming these machines are mutually exclusive, which machine(s) would Dammon Corp. choose? A. Machine A B. Machine B C. Machine C D. None of the machines will be accepted.
Consider the following investment opportunities. Period A B C D 0 -12,500 -11,000 12,500 -13,000 1...
Consider the following investment opportunities. Period A B C D 0 -12,500 -11,000 12,500 -13,000 1 5,400 -3,000 -7,000 5,500 2 14,400 21,000 -2,000 5,500 3 7,200 13,000 4,000 8,500 a) Compute the present worth of each investment, assuming a MARR of 15% b) Compute the future worth of each investment, assuming a MARR of 15% c) Which project or projects are acceptable?
Company BW has the following two investment opportunities (A and B). Which project is better, according...
Company BW has the following two investment opportunities (A and B). Which project is better, according to MIRR? Which project is better, according to Discounted Payback period? Net Cash Flows End of Year 0 1 2 3 Project A -4,000 1,500 3,000 2,500 Project B -5,500 3,500 2,800 1,900 discount rate 9%
The following data pertain to an investment proposal Cost of investment 45,000 annual Cost savings 10,000...
The following data pertain to an investment proposal Cost of investment 45,000 annual Cost savings 10,000 Estimated salvage value 0 Expected life of investemnt 5 years discount Rate 10% What is the net present Value of the proposed investment
1. Frane Ltd has available two investment opportunities with the following risk return characteristics A B...
1. Frane Ltd has available two investment opportunities with the following risk return characteristics A B Expected return 13% 20% Risk 4% 8% Frane Ltd plans to invest 65% of its available funds in Security A, and 35% in B. The directors believe that the correlation coefficient between the returns of the securities is +0.2. (i) Calculate the expected return of the portfolio and the risk of the portfolio. E(RP)=15.45% σp= 4.18% This one I have calculated, thank you. (ii)...
1. Frane Ltd has available two investment opportunities with the following risk return characteristics A B...
1. Frane Ltd has available two investment opportunities with the following risk return characteristics A B Expected return 13% 20% Risk 4% 8% Frane Ltd plans to invest 65% of its available funds in Security A, and 35% in B. The directors believe that the correlation coefficient between the returns of the securities is +0.2. (i) Calculate the expected return of the portfolio and the risk of the portfolio. E(RP)=15.45% σp= 4.18% This one I have calculated, thank you. (ii)...
Prepare journal entries for the following transactions: a. A machine that cost $10,000 with a residual...
Prepare journal entries for the following transactions: a. A machine that cost $10,000 with a residual value of $2,000 is fully depreciated and discarded. b. A machine purchased on January 1, 2020 for $20,000, with a useful life of 4 years, and a residual value of $4,000, is sold on April 1, 2020 for $8,000. Use the straight-line method. c. A machine that cost $15,000, has accumulated depreciation of $12,000 is sold for $5,000.
A company has 2 investment opportunities with the following cash flows:                               &n
A company has 2 investment opportunities with the following cash flows:                                   Year 1           Year 2           Year 3      Investment A            $1,500          $1,250          $1,800      Investment B            $1,500          $1,500          $1,500 If a company can earn 5% in other investments, what is the present value of investments A and B?   Investment A = $4,084.50 Investment B = $4,117.20 Investment A = $4,084.50 Investment B = $4,084.50 Investment A = $4,117.20 Investment B = $4,084.50 Investment A = $4,275 Investment B =...
Calculate the MIRR of the following project. Corp. ABC's initial investment cost is $180, and Corp....
Calculate the MIRR of the following project. Corp. ABC's initial investment cost is $180, and Corp. ABC will receive cash inflows of $55, $142, and $35 over the next three years. The discount rate is 13%. Show all of your work (written out). Round to the nearest 0.01%.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT