When calculating payback period, is training cost treated as initial investment cost or one time expense...

When calculating payback period, is training cost treated as initial investment cost or one time expense cash outflow? What formula is used to calculate payback period?

Expert Solution

Training cost treated as Initial Investment Cost

- YES. The training cost treated as a part of Initial Investment Cost in capital budgeting. The Costs of training employees or staffs to use the new machines of the project shall be included as a part of Initial Investment costs.

- The cash outflows incurred for the Initial Investment includes all the costs expected to incur or incurred to ready the assets available for use.

- In addition to the cost of assets or machines, Initial Investment includes Delivery charges, Installation charges, Training costs, Etc…

Formula is used to calculate payback period

There are mainly two types of cash flows – Annual Equal cash inflows and Uneven cash flows.

Payback Period for Annual Equal cash flows

Payback Period = Initial Investment / Annual Cash inflows

Payback Period for Uneven Cash inflows.

Payback Period = Years Before Full Recover + (Unrecovered cash inflow at start of the year / Cash Inflow during the year)

ekkarill92 answered 2 years ago

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.

Project 1 Initial $ 130,000.00 Investment Cost of Capital 7% Target Payback 4 years Period Cash...

Project 1 Initial $ 130,000.00 Investment Cost of Capital 7% Target Payback 4 years Period Cash Flow Project 1 Cum. CF Discounted CF Cum. CF Initial Investment $ (130,000) $ (130,000) $ (130,000) $ (130,000) Year 1 $ 33,000 $ (97,000) $ 30841 $ (99,159) Year 2 $ 33,000 $ (60,000) $ 28,823 $ (70,335) Year 3 $ 33,000 $ (31,000) $ 26,938 $ (43,398) Year 4 $ 30,000 $ (1,000) $ 22,887 $ (20,511) Year 5 $ 30,000 $...

Project 1 Initial $ 120,000.00 Investment Cost of Capital 9% Target Payback 4 years Period Cash...

Project 1 Initial $ 120,000.00 Investment Cost of Capital 9% Target Payback 4 years Period Cash Flow Project 1 Cum. CF Discounted CF Cum. CF Initial Investment $ (120,000) $ (120,000) $ (120,000) $ (120,000) Year 1 $ 30,000 $ (90,000) $ 27,523 $ (92,477) Year 2 $ 30,000 $ (60,000) $ 25,250 $ (67,227) Year 3 $ 30,000 $ (30,000) $ 23,166 $ (44,061) Year 4 $ 35,000 $ 5,000 $ 24,795 $ (19,266) Year 5 $ 35,000 $ ...

5 (13pt) What is the payback period of the following investment when a) i= 0% and...

5 (13pt) What is the payback period of the following investment when a) i= 0% and b) i=10%/year? Site Initial cost ($) Annual cost ($) Annual Income ($) Salvage value Max life time A 100000 10000 30000 50000 10 yrs

Calculate NPV and Payback Period given: $142,000 initial cost payments of $10,000 a month for 5...

Calculate NPV and Payback Period given: $142,000 initial cost payments of $10,000 a month for 5 years 5 year salvage value is $40,000 The discount rate to be used is 7%

According to the payback rule, an investment is accepted if its calculated payback period is less...

According to the payback rule, an investment is accepted if its calculated payback period is less than or equal to a prespecified number of years. Consider the investment below if analysed using the NPV rule. The initial cost is R6-million and the cost of capital is 10% per annum. It has been decided that the project should be accepted if the payback period is three years or less. Using the payback rule, should this project be undertaken? Year Cash Flow...

If an investment proposal is accepted for implementation and its payback period period is 3 years...

If an investment proposal is accepted for implementation and its payback period period is 3 years out of 5, is it virtually certain that the project will have to support for the first few years with capital from sources other than the cash generated from the projects. what are the implications of this multiyear cash requirement for the management. Will the implications be same if a new company with no other projects in line is evaluating the same project.

Net Present Value and Other Investment Criteria Payback Period - Concerning payback: a. Describe how the...

Net Present Value and Other Investment Criteria Payback Period - Concerning payback: a. Describe how the payback period is calculated, and describe the information this measure provides about a sequence of cash flows. What is the payback criterion decision rule? b. What are the problems associated with using the payback period to evaluate cash flows? c. What are the advantages of using the payback period to evaluate cash flows? Are there any circumstances under which using payback might be appropriate?...

Project 1 Initial $ 150,000.00 Investment Cost of Capital 10% Target Payback 4 years Cash Flow...

Project 1 Initial $ 150,000.00 Investment Cost of Capital 10% Target Payback 4 years Cash Flow Project 1 Cum. CF Discounted CF Cum. CF Initial Investment $ (150,000) $ (150,000) $ (150,000) $ (150,000) Year 1 $ 35,000 $ (115,000) $ 31,818 $ (118,182) Year 2 $ 35,000 $ (80,000) $ 28,926 $ (89,256) Year 3 $ 45,000 $ (35,000) $ 33,809 $ (55,447) Year 4 $ 45,000 $ 10,000 $ 30,736 $ (24,711) Year 5 $ 45,000 $ 55,000...

Calculating EAC A five-year project has an initial fixed asset investment of$8,200,000, an initial NWC investment...

Calculating EAC A five-year project has an initial fixed asset investment of$8,200,000, an initial NWC investment of $752,000 and an annual OCF of $1,120,000.The fixed asset is fully depreciated over the life of the project and has no salvagevalue. If the required return is 15 percent, what is this project’s equivalent annualcost, or EAC?

Question