The director of capital budgeting for Big Sky Health System, Inc. has estimated the following cash...

The director of capital budgeting for Big Sky Health System, Inc. has estimated the following cash flows for a new service and has a cost of capital of 8%. What is the project’s payback period?

year annual cash flows project cost of capital

0 $ (125,000) 8%

1 $ 75,000

2 $ 55,000

3 $ 25,000

Choice: 4 years Choice: Not enough information to tell. Choice: 1.91 years Choice: 2.4 years

Expert Solution

Year	0	1	2	3
Cashflow(in $)	(125,000)	75,000	55,000	25,000
Cumulative Cashflow(in $)	(125,000)	(50,000)	5,000	30,000

Payback Period = A + (B/C)

where

A - last time period where the cumulative cash flow was negative = 1

B - absolute value of the CCF at the end of that period A = 50000

C - value of the CCF in the next period after A = 55000

Payback Period = 1+(50000/55000)

= 1.91 years

jeff jeffy answered 10 months ago

The director of capital budgeting for Giant Inc. has identified two mutually exclusive projects, L and...

The director of capital budgeting for Giant Inc. has identified two mutually exclusive projects, L and S, with the following expected net cash flows: Expected Net Cash Flows Year Project L Project S 0 ($100) ($100) 1 10 70 2 60 50 3 80 20 Both projects have a cost of capital of 12 percent. What is Project S's MIRR? What is Project L's MIRR?

As the capital budgeting director of Union Mills Inc., you are analyzing the replacement of an...

As the capital budgeting director of Union Mills Inc., you are analyzing the replacement of an automated loom system. The old system was purchased 5 years ago for $200,000; it is in CCA class 8; it has 5 years of remaining life; however, due to technological change there is no resale value for the system. The new system has a price of $300,000, plus $50,000 in installation costs. The new system falls into the same CCA class, has a 5-year...

The capital budgeting director of Global Products, Inc. is evaluating a new project that would increase...

The capital budgeting director of Global Products, Inc. is evaluating a new project that would increase revenues by $60,000 per year. Associated annual related expenses for this project are estimated at $30,000. The projected cost of the project is $50,000. The project anticipates the immediate need of $10,000 in net operating working capital that should be recaptured at the end of the project’s three-year life. The marginal tax rate is 21%. The firm plans to depreciate the project using MACRS....

Exercise Example - Capital Budgeting Project Analysis - Chapter 5 As director of capital budgeting, you...

Exercise Example - Capital Budgeting Project Analysis - Chapter 5 As director of capital budgeting, you are reviewing three potential investment projects with the following cost and cash flow projections. Cash Flow Project A Project B Project C Investment Cost ($500,000) ($375,000) ($475,000) Year One Cash Flow $200,000 $175,000 $250,000 Year Two Cash Flow $180,000 $50,000 $200,000 Year Three Cash Flow $100,000 $50,000 $75,000 Year Four Cash Flow $80,000 $50,000 $30,000 Year Five Cash Flow $140,000 $300,000 $30,000 Calculate the...

You are a financial analyst for the Waffle Company. The director of capital budgeting has asked...

You are a financial analyst for the Waffle Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects A and B. Each project has a cost of $50,000, and the cost of capital for each is 10%. The projects’ expected net cash flows are as follows: Expected Net Cash Flows Year Project A Project B 0 ($50,000) ($50,000) 1 25,000 15,000 2 20,000 15,000 3 10,000 15,000 4 5,000 15,000 5 5,000 15,000 e....

You are a financial analyst for the Hittle Company. The director of capital budgeting has asked...

You are a financial analyst for the Hittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each is 12%. The projects’ expected net cash flows are as follows: Expected Net Cash Flows Year Project X Project Y 0 ?$10,000 ?$10,000 1 6,500 3,500 2 3,000 3,500 3 3,000 3,500 4 1,000 3,500 a. Calculate each project’s...

Capital Budgeting The Recycled Paper Inc. corporation is considering a project with the following cash flows....

Capital Budgeting The Recycled Paper Inc. corporation is considering a project with the following cash flows. Year Cash Flow 0 ($75,000) 1 $18,500 2 $18,500 3 $18,500 4 $18,500 5 $12,500 6 $12,500 7 $12,500 8 $12,500 Refer to the Capital Budgeting narrative. What is the payback period of the proposed project? A. 1.28 years B. 2.28 years C. 3.28 years D. 4.08 years Refer to the Capital Budgeting narrative. What is the net present value of the proposed project...

AS A CAPITAL BUDGETING DIRECTOR OF DAYTON CORPORATION, YOU ARE EVALUATING TWO PROJECTS WITH THE FOLLOWING...

AS A CAPITAL BUDGETING DIRECTOR OF DAYTON CORPORATION, YOU ARE EVALUATING TWO PROJECTS WITH THE FOLLOWING NET CASH FLOWS: COST OF CAPITAL IS 12% YEAR 0 1 2 3 4 X $-2,000 $250 $380 $480 $2,000 Y $-1,800 $1,600 $600 $200 $420 Calculate Project X's DISCOUNT PAYBACK PERIOD (DPB) A. 1.57 B. 1.78 C. 3.47 D. 3.89 E. 5.22

You are a financial analyst working for Salalah Mills LLC The Director of Capital Budgeting has...

You are a financial analyst working for Salalah Mills LLC The Director of Capital Budgeting has asked you to analyze an Investment Proposal. The investment will need an initial cash outflow if OMR 60000 and has a life of 5 years. Following information is given Cash flow ( OMR) year 1 16000 year 2 16000 year 3 22000 year 4 22000 year 5 31000 a) Calculate the Net present value for using the discounting money cash flows if the rate...

10a- Your firm is evaluating a capital budgeting project. The estimated cash flows appear below. The...

10a- Your firm is evaluating a capital budgeting project. The estimated cash flows appear below. The board of directors wants to know the expected impact on shareholder wealth. Knowing that the estimated impact on shareholder wealth equates to net present value (NPV), you use your handy calculator to compute the value. What is the project's NPV? Assume that the cash flows occur at the end of each year. The discount rate (i.e., required rate of return, hurdle rate) is 14.4%....

Question