Question
In: Finance
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 months agoRelated Solutions
Exercise 3.21 DISCOUNTED PAYBACK Your company is considering a high-risk project that could yield strong revenues...
Exercise 3.21 DISCOUNTED PAYBACK
Your company is considering a high-risk project that could yield
strong revenues but will involve a significant up-front investment.
Because of this risk, top management is naturally concerned about
how long it is likely to take to pay off that investment so that
they can begin to realize profits. This project will require an
investment of $200,000 and your five-year projection for inflows
is: Year 1 – $50,000, Year 2 – $75,000, Year 3 – $125,000,...
(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
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- An investor is considering purchasing a Treasury bond with a 20 year maturity, an 8% coupon...
- Write a program that copies the contents of one file to a destination file. This program...
- how to conduct a marketing mix for 3d crest white strips
- Is big data analytics used for service innovation at Amazon? If so, please write a brief...
- A shrink-fit process has been used to enhance the pressure carrying capacity of a cylinder. During...
- Ten-year zero coupon bonds issued by the U.S. Treasury have a face value of $1,000 and...
- The Blossom Department of Transportation has issued 25-year bonds that make semiannual coupon payments at a...
ADVERTISEMENT