Question

In: Finance

Company XYZ is considering project A. Project A requires an initial investment of $75,000.

Company XYZ is considering project A. Project A requires an initial investment of $75,000. It generates $35,000 each year for the coming 3 years. What is the discounted payback period for this project if the proper discount rate is 18%?

Solutions

Expert Solution

Discounted Pay Back Period = no. of years it takes to break even the initial outlay by considering the PV of future cash flows.

 

Pay Back Period= Low Year +((Initial Outflow - Cumulative Cash flow at low year) / Cash flow at high year)*(difference in Year)

Year Cash Flow PVF At 18.00%

PV

 Cumulative

1

35000

0.847

29661.017

29661.017

2

35000

0.718

25136.455

54797.472

3

35000

0.609

21302.081

76099.553
         
Initial Outflow

-75000

      
Low Year High Year      

2

3

      
Amt Recovered High Year PV      

54797.472

21302.081

      
         
Discounted Payback Period

2.95

      

 

The discounted payback period for this project if the proper discount rate is 18% = 2.95 Years.

The discounted payback period for this project if the proper discount rate is 18% = 2.95 Years.

Junaid answered 2 years ago
Next > < Previous

Related Solutions

The Sampson Company is considering a project that requires an initial outlay of $75,000 and produces...
The Sampson Company is considering a project that requires an initial outlay of $75,000 and produces cash inflows of $20,806 each year for five years. Sampson’s cost of capital is 10%. a. Calculate the project’s payback period by making a single division rather than accumulating cash inflows. Why is this possible in this case? b. Calculate the project’s IRR, recognizing the fact that the cash inflows are an annuity. Is the project acceptable? Did your calculation in this part result...
The Sampson Company is considering a project that requires an initial outlay of $75,000 and produces...
The Sampson Company is considering a project that requires an initial outlay of $75,000 and produces cash inflows of $20,806 each year for five years. Sampson's cost of capital is 8%. Calculate the project's payback period by making a single division rather than accumulating cash inflows. Round the answer to two decimal places. year(s) Calculate the project's IRR, recognizing the fact that the cash inflows are an annuity. Round PVFA values in intermediate calculations to four decimal places. Round the...
A company is considering a project that requires an initial investment of $660,000 and has a...
A company is considering a project that requires an initial investment of $660,000 and has a useful life of 11 years. Expected cash receipts from the project will be $175,000 each year. The salvage value of the assets used in the project will be $75,000. The company’s tax rate is 30%. For tax purposes, the entire initial investment (without any reduction for salvage value) will be depreciated over 11 years. The company uses a discount rate of 21%. Provide the...
A company is considering a project that requires an initial investment of $660,000 and has a...
A company is considering a project that requires an initial investment of $660,000 and has a useful life of 11 years. Expected cash receipts from the project will be $195,000 each year. The salvage value of the assets used in the project will be $70,000. The company’s tax rate is 25%. For tax purposes, the entire initial investment (without any reduction for salvage value) will be depreciated over 11 years. The company uses a discount rate of 20%. Provide the...
A company is considering a project that requires an initial investment of $810,000 and has a...
A company is considering a project that requires an initial investment of $810,000 and has a useful life of 12 years. Expected cash receipts from the project will be $190,000 each year. The salvage value of the assets used in the project will be $75,000. The company’s tax rate is 35%. For tax purposes, the entire initial investment (without any reduction for salvage value) will be depreciated over 12 years. The company uses a discount rate of 17%. Provide the...
A company is considering a project that requires an initial investment of $56M to build a...
A company is considering a project that requires an initial investment of $56M to build a new plant and purchase equipment. The investment will be depreciated as a MACRS 10-year class (see p. 21 in the text) asset. The new plant will be built on some of the company’s land which has a current, after-tax market value of $5.5M. The company will produce units at a cost of $255 each and will sell them for $300 each. There are annual...
McCormick & Company is considering a project that requires an initial investment of $24 million to...
McCormick & Company is considering a project that requires an initial investment of $24 million to build a new plant and purchase equipment. The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-year class asset. The new plant will be built on some of the company's land, which has a current, after-tax market value of $4.3 million. The company will produce bulk units at a cost of $130 each and will sell them for $420 each....
McCormick & Company is considering a project that requires an initial investment of $24 million to...
McCormick & Company is considering a project that requires an initial investment of $24 million to build a new plant and purchase equipment. The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-year class asset. The new plant will be built on some of the company's land, which has a current, after-tax market value of $4.3 million. The company will produce bulk units at a cost of $130 each and will sell them for $420 each....
McCormick & Company is considering a project that requires an initial investment of $24 million to...
McCormick & Company is considering a project that requires an initial investment of $24 million to build a new plant and purchase equipment. The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-year class asset. The new plant will be built on some of the company's land, which has a current, after-tax market value of $4.3 million. The company will produce bulk units at a cost of $130 each and will sell them for $420 each....
The Elkton Company is considering a new project that requires an initial investment of $24,000,000 to...
The Elkton Company is considering a new project that requires an initial investment of $24,000,000 to build a new plant and purchase equipment. The investment will be depreciated using the straight line method over 10 years.   The new plant will be built on some of the company's land which has a current, after-tax market value of $5,000,000.  The company will produce widgets at a cost of $130 each and will sell them for $420 each. Annual fixed costs are $500,000.  Sales (in units)...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT