Your company is considering investing in a new project and wants to know the discounted payback...

Your company is considering investing in a new project and wants to know the discounted payback period. The initial investment in the project is $12,000 and the expected annual profit is $2,800 per year. You also expect to have to have to overhaul the equipment every 4 years, which will cost $600 (that is, in years 4, 8, 12, etc. The project will also make the $2,800 profit in those years). Given an interest rate of 8%, what is the discounted payback period?

Solutions

Expert Solution

Calculation of discounted payback period
Year	Cash flow	PVF	PV	Cumulative Present value
0	-12000	1	-12000	-12000
1	2800	0.925925926	2592.592593	-9407.407407
2	2800	0.85733882	2400.548697	-7006.858711
3	2800	0.793832241	2222.730275	-4784.128436
4	2200	0.735029853	1617.065676	-3167.06276
5	2800	0.680583197	1905.632952	-1261.429808
6	2800	0.630169627	1764.474955	503.0451474
7	2800	0.583490395	1633.773107	2136.818254
8	2200	0.540268885	1188.591546	3325.4098

Hence, discounted payback period = 5 + 1261.43/1764.475 = 5.7149 years

jeff jeffy answered 3 weeks ago

Next > < Previous

Related Solutions

(Discounted payback period) The Callaway Cattle Company is considering the construction of a new feed handling...

(Discounted payback period) The Callaway Cattle Company is considering the construction of a new feed handling system for its feed lot in Abilene, Kansas. The new system will provide annual labor savings and reduced waste totaling $190,000 while the initial investment is only $510,000. Callaway's management has used a simple payback method for evaluating new investments in the past but plans to calculate the discounted payback to analyze the investment. Where the appropriate discount rate for this type of...

(Discounted payback period) You are considering a project with the following cash flows: YEAR PROJECT CASH...

(Discounted payback period) You are considering a project with the following cash flows: YEAR PROJECT CASH FLOW 0 -40,000 1 15,000 2 15,000 3 15,000 4 15,000 If the appropriate discount rate is 12 percent, what is the project's discounted payback period? The project's discounted payback period is ___ years. (Round to two decimal places.)

(Discounted payback period) Gio's Restaurants is considering a project with the following expected cash flows:...

(Discounted payback period) Gio's Restaurants is considering a project with the following expected cash flows: Year Project Cash Flow (millions) 0 $(240) 1 100 2 75 3 100 4 110 If the project's appropriate discount rate is 11 percent, what is the project's discounted payback period? The project's discounted payback period is nothing years. (Round to two decimal places.)

(Discounted payback period) Gio's Restaurants is considering a project with the following expected cash flows:...

(Discounted payback period) Gio's Restaurants is considering a project with the following expected cash flows: Year Project Cash Flow (millions) 0 $(150) 1 90 2 70 3 90 4 100 If the project's appropriate discount rate is 12 percent, what is the project's discounted payback period? The project's discounted payback period is nothing years. (Round to two decimal places.)

Tangshan Mining Company is considering investing in a new mining project.

Tangshan Mining Company is considering investing in a new mining project. The firm’s cost of capital is 12 percent and the project is expected to have an initial after tax cost of $5,000,000. Furthermore, the project is expected to provide after-tax operating cash flows of ($1,800,000) in year 1, $2,900,000 in year 2, $2,700,000 in year 3 and $2,300,000 in year 4?Maximum acceptable payback period of this project is 3 years. Calculate the payback period for this project.Calculate the...

Problem 13-8 Discounted Payback (LG13-2) Compute the discounted payback statistic for Project D if the appropriate...

Problem 13-8 Discounted Payback (LG13-2) Compute the discounted payback statistic for Project D if the appropriate cost of capital is 11 percent and the maximum allowable discounted payback is four years. (Do not round intermediate calculations and round your final answer to 2 decimal places. If the project does not pay back, then enter a "0" (zero).) Project D Time: 0 1 2 3 4 5 Cash flow: –$12,800 $3,530 $4,540 $1,880 $0 $1,360 Problem 13-8 Discounted Payback (LG13-2) Compute...

(Discounted payback period) Gio's Restaurants is considering a project with the following expected free cash flows:...

(Discounted payback period) Gio's Restaurants is considering a project with the following expected free cash flows: LOADING... . If the project's appropriate discount rate is 9 percent, what is the project's discounted payback period? The project's discounted payback period is nothing years.YEAR PROJECT CASH FLOW 0 -150 1 85 2 80 3 80 4 100

(Discounted payback period) Gio's Restaurants is considering a project with the following expected cash flows: 0...

(Discounted payback period) Gio's Restaurants is considering a project with the following expected cash flows: 0 - 210 million 1 95 million 2 75 million 3 95 million 4 90 million If the project's appropriate discount rate is 11 percent, what is the project's discounted payback period? The project's discounted payback period is _____years.

A company is considering investing in a new project that will cost $6,589,490 and increase net...

A company is considering investing in a new project that will cost $6,589,490 and increase net income by 8.18%. This project will be completely funded by issuing new equity shares. Currently, the firm has 2,196,490 common shares outstanding with a market price of $32.91 per share. The current earnings per share are $1.79. What will be the earnings per share if the project is implemented? $1.73 $1.77 $1.82 $1.86 $1.91

You are considering investing in a new project, Project B. Your firm has already invested in...

You are considering investing in a new project, Project B. Your firm has already invested in one project, Project A. If the cash flows to Project A will increase when you invest in Project B, should you include the entire cash flows to Project A in your valuation of Project B, include the new cash flows to Project A in the valuation of Project B, or exclude any cash flows to Project A in the valuation of Project B? Explain...

Subjects