Payback Period

A project has an initial cost of $500,000 whereas it has an expected annual cash flow of $75,000 each year for the next 10 years. The firm has the criteria of accepting the project if its payback period is 6 years or less. Based on the payback period, state whether the project would be accepted or not?

Expert Solution

Initial Cash Outlay = $500,000

Annual Cash flow = $75,000

$ \begin{align}\rm\text{Payback Period} &=\frac {Initia \ Cash \ Outlay}{Annual \ Cash \ Inflow }\\ &= \frac {\$500,000}{\$75,000}\\ &= 6.67 \rm\text{ Years}\end{align} $

Since the payback period of the project is 6 years whereas the decision criteria are that life should be less than or equal to 6 years.

So, the project should be rejected.

The project should be rejected.

Vinay answered 3 years ago

The Basics of Capital Budgeting: Payback Period Payback Period Payback period was the earliest ________ selection...

The Basics of Capital Budgeting: Payback Period Payback Period Payback period was the earliest ________ selection criterion. -Select- capital structure financial statement capital budgeting The _________ -Select- NPV MIRR IRR payback is a "break-even" calculation in the sense that if a project's cash flows come in at the expected rate, the project will break even. The equation is: The -Select- shorter longer a project's payback, the better the project is. However, payback has 3 main disadvantages: (1) All dollars received...

Distinguish between the payback period and the discounted payback period?

What is the difference between discount payback period and payback period

3. Payback Period - Concerning payback: a. Describe how the payback period is calculated, and describe...

3. 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? Explain.

(Payback period) What is the payback period for the set of cash flows in the popup...

(Payback period) What is the payback period for the set of cash flows in the popup window, LOADING... ? The payback period for the set of cash flows is nothing years. 0 -11,200 1 3,800 2 4,800 3 3,700 4 4,600 5 3,200 (Payback period, NPV, PI, and IRR calculations) You are considering a project with an initial cash outlay of $75,000 and expected free cash flows of $22,000 at the end of each year for 6 years. The...

Find payback period

Find payback period Year Project Cash Flow ($) 0 -15,000,000 1 5,500,000 2 4,250,000 3 3,333,333 4 2,050,000 5 1,250,000 6 1,250,000

The project's payback period is:

A project has the following cash flows: Year 0 1 2 3 4 Cash flow ($240,000) $60,000 $100,000 $60,000 $80,000 The project's payback period is: a. four years b. three and one-half years c. three and one-quarter years d. none of the above

Calculate the Payback Period &nbsp

Calculate the Payback Period The payback period is the length of time required for the cash to be coming in from an investment to equal the amount of cash originally spent when the investment was acquired. ...

Determine the Payback Period, the Discounted Payback Period, and the Net Present Value for the following...

Determine the Payback Period, the Discounted Payback Period, and the Net Present Value for the following after-tax cash flow projections. Also tell me whether the IRR is greater or less then the RRR. A. Year ATCF 0 $(60,000) 1 21,000 2 27,000 3 24,000 4 16,000 Assume a 16% required rate of return

Determine the Payback Period, the Discounted Payback Period, and the Net Present Value for the following...

Determine the Payback Period, the Discounted Payback Period, and the Net Present Value for the following after-tax cash flow projections. Also tell me whether the IRR is greater or less then the RRR B. Year ATCF 0 (100,000) 1 (320,000) 2 130,000 3 185,000 4 200,000 5 195,000 6 150,000 Assume a 20% required rate of return

Question

Payback Period

Solutions

Expert Solution

Related Solutions

The Basics of Capital Budgeting: Payback Period Payback Period Payback period was the earliest ________ selection...

Distinguish between the payback period and the discounted payback period?

What is the difference between discount payback period and payback period

3. Payback Period - Concerning payback: a. Describe how the payback period is calculated, and describe...

(Payback period) What is the payback period for the set of cash flows in the popup...

Find payback period

The project's payback period is:

Calculate the Payback Period &nbsp

Determine the Payback Period, the Discounted Payback Period, and the Net Present Value for the following...

Determine the Payback Period, the Discounted Payback Period, and the Net Present Value for the following...