Question
In: Finance
Given the following two projects and their cash flows, , calculate the discounted payback period with...
Given the following two projects and their cash flows,
, calculate the discounted payback period with a discount rate of 6%, 8%,and 18%.
What do you notice about the payback period as the discount rate rises? Explain this relationship.
With a discount rate of 6%,
the cash outflow for project A is:
A. recovered in 5 years.
B.recovered in 3.16 years.
C.recovered in 3 years.
D.never fully recovered.
|
Cash Flow |
A |
B |
||
|
Cost |
$8,000 |
$100,000 |
||
|
Cash flow year 1 |
$2,857 |
$10,000 |
||
|
Cash flow year 2 |
$2,857 |
$20,000 |
||
|
Cash flow year 3 |
$2,857 |
$30,000 |
||
|
Cash flow year 4 |
$2,857 |
$40,000 |
||
|
Cash flow year 5 |
$2,857 |
$15,000 |
||
|
Cash flow year 6 |
$2,857 |
$0 |
||
Solutions
Expert Solution
Using excel formula to calculate discounted pay back period
| Year | 0.00 | 1 | 2 | 3 | 4 | 5 | 6 |
| Project A Disount Rate =6% | -8000 | 2857 | 2857 | 2857 | 2857 | 2857 | 2857 |
| Discounted Cash Flow | -8000.00 | 2695.28 | 2542.72 | 2398.79 | 2263.01 | 2134.92 | 2014.07 |
| Cumulative Cash flow | -8000.00 | -5304.72 | -2762.00 | -363.20 | 1899.81 | 4034.72 | 6048.80 |
| Discounted Payback Period | 3.16 | ||||||
| excel formula | (=3-363.20/2263.01) | ||||||
| Year | 0.00 | 1 | 2 | 3 | 4 | 5 | 6 |
| Project A Disount Rate =8% | -8000 | 2857 | 2857 | 2857 | 2857 | 2857 | 2857 |
| Discounted Cash Flow | -8000.00 | 2645.37 | 2449.42 | 2267.98 | 2099.98 | 1944.43 | 1800.39 |
| Cumulative Cash flow | -8000.00 | -5354.63 | -2905.21 | -637.23 | 1462.75 | 3407.17 | 5207.57 |
| Discounted Payback Period | 3.30 | ||||||
| excel formula | (=3+637.23/2099.98) | ||||||
| Year | 0.00 | 1 | 2 | 3 | 4 | 5 | 6 |
| Project A Disount Rate =18% | -8000 | 2857 | 2857 | 2857 | 2857 | 2857 | 2857 |
| Discounted Cash Flow | -8000.00 | 2421.19 | 2051.85 | 1738.86 | 1473.61 | 1248.82 | 1058.32 |
| Cumulative Cash flow | -8000.00 | -5578.81 | -3526.96 | -1788.10 | -314.49 | 934.33 | 1992.65 |
| Discounted Payback Period | 4.25 | ||||||
| excel formula | (4+314.49/1248.82) |
| Year | 0.00 | 1 | 2 | 3 | 4 | 5 | 6 |
| Project B Discount Rate =6% | -100000 | 10000 | 20000 | 30000 | 40000 | 15000 | 0 |
| Discounted Cash Flow | -100000.00 | 9433.96 | 17799.93 | 25188.58 | 31683.75 | 11208.87 | 0.00 |
| Cumulative Cash flow | -100000.00 | -90566.04 | -72766.11 | -47577.53 | -15893.78 | -4684.91 | -4684.91 |
| Discounted Payback Period | Never Recovered | ||||||
| excel formula | |||||||
| Year | 0.00 | 1 | 2 | 3 | 4 | 5 | 6 |
| Project B Discount Rate =8% | -100000 | 10000 | 20000 | 30000 | 40000 | 15000 | 0 |
| Discounted Cash Flow | -100000.00 | 9259.26 | 17146.78 | 23814.97 | 29401.19 | 10208.75 | 0.00 |
| Cumulative Cash flow | -100000.00 | -90740.74 | -73593.96 | -49779.00 | -20377.80 | -10169.06 | -10169.06 |
| Discounted Payback Period | Never Recovered | ||||||
| excel formula | |||||||
| Year | 0.00 | 1 | 2 | 3 | 4 | 5 | 6 |
| Project B Discount Rate =18% | -100000 | 10000 | 20000 | 30000 | 40000 | 15000 | 0 |
| Discounted Cash Flow | -100000.00 | 8474.58 | 14363.69 | 18258.93 | 20631.56 | 6556.64 | 0.00 |
| Cumulative Cash flow | -100000.00 | -91525.42 | -77161.74 | -58902.81 | -38271.25 | -31714.62 | -31714.62 |
| Discounted Payback Period | Never Recovered | ||||||
| excel formula |
At 6% Project A would be recovered in 3.16 years (Option b is correct option)
jeff jeffy answered 2 years agoRelated Solutions
Given the following cash flows for a capital project, calculate its payback period and discounted payback...
Given the following cash flows for a capital project, calculate
its payback period and discounted payback period. The required rate
of return is 8 percent. Year 0 1 2 3 4 5 Cash Flows $-37500 $11250
$11250 $15000 $6000 $6000 The discounted payback period is 0.16
year longer than the payback period. 0.80 year longer than the
payback period. 1.27 years longer than the payback period. 1.85
years longer than the payback period.
Given the following cash flows for a capital project, calculate its payback period and discounted payback...
Given the following cash flows for a capital project, calculate
its payback period and discounted payback period. The required rate
of return is 8 percent.
Year
0
1
2
3
4
5
Cash Flows
$-56900
$13650
$18050
$25200
$10000
$5000
The discounted payback period is
1. Given the following set of cash flows for a project, calculate the Payback, Discounted Payback...
1. Given the following set of cash flows for a project,
calculate the Payback, Discounted Payback and Accounting Rate of
Return. Assume a cost of capital of 10%. Assuming that this is an
independent project, should the project be accepted? Why or why
not?
Year
Cash
Flow
Net
Profit
Depreciation
0
-$125,000
1
$22,000
$15,000
$10,000
2
$58,000
$43,000
$25,000
3
-$30,000
$24,000
$21,000
4
$35,000
$28,000
$18,000
5
$28,000
$20,000
$15,000
6
$60,000
$52,000
$11,000
And now Construct an...
Calculate the discounted payback period for the following cash flows. Investment = $300,000 Salvage Value =...
Calculate the discounted payback period for the following cash
flows.
Investment = $300,000
Salvage Value = 0
Service Life = 4 Years
MARR = 5%
n
Cash Flow
Cost of Capital
Balance
0
-300,000
1
100,000
2
150,000
3
125,000
4
100,000
What is the discounted payback period for the investment project that has the following cash flows,...
What is the discounted payback period for the investment project
that has the following cash flows, if the discount rate is 14
percent? (Do not round intermediate calculations and round your
final answer to 2 decimal places. (e.g., 32.16)) Year Cash
Flows
0 -13779
1 4470
2 5005
3 5877
4 6626
(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.)
Calculate the Payback Period and Discounted Payback Period for the following project: 1. An initial investment...
Calculate the Payback Period and Discounted Payback
Period for the following project:
1. An initial investment of $20,000 with expected after-tax
operating cash flows of $125,000 per year for each of the
next 3 years. However, in preparation for its
termination at the end of year 3, an additional investment of
$350,000 must be made at the end of Year 2.
Please show all work in excel.
For the following two projects, determine the Payback Period Discounted Payback Net Present Value Profitability Index...
For the following two projects, determine the
Payback Period
Discounted Payback
Net Present Value
Profitability Index (Benefit-Cost Ratio)
Internal Rate of Return
Modified Internal Rate of Return
Project A
Project B
Year
Net Income
Cash Flow
Net Income
Cash Flow
0
(15,000)
(19,000)
1
5,000
6,000
3,000
4,000
2
5,000
6,000
5,000
6,000
3
5000
6,000
7,000
8,000
4
5,000
6,000
11,000
12,000
Risk Index
1.80
.60
The firm’s cost of capital ko is 15% and the risk
free...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- The legal landscape is perpetually changing. Psychologists must remain abreast of these changes to avoid potentially...
- We are evaluating a project that costs $1.68 million, has a six-year life, and has no...
- In C++ Having call-by-reference allows one to use storeback parameters, i.e., parameters whose values are transmitted...
- You must evaluate a proposal to buy a new milling machine. The base price is $175,000,...
- “Triangle Guessing” game in Python The program accepts the lengths of three (3) sides of a...
- THIS PROGRAM HAS TO BE WRITTEN IN C Single function to perform the parity computation on...
- Consider a buffer system consisting of Benzoic acid (pKa = 4.20) and sodium benzoate, a) Would...
ADVERTISEMENT