please solve this > Payback Period This is one useful non-discounting method for
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Payback Period This is one useful non-discounting method for evaluating capital investment decisions. The particulars of the method vary depending on whether the cash flows from an investment are even or uneven. The primary information transmitted by the payback period method is how long it will take (in years) to recover the Select Payback Period (Even cash flows) Suppose that a particular investment required an up-front capital outlay of $100,000. This investment is expected to yield cash flows of $45,000 per year for 10 years. What is the payback period for this investment? If required, round your answer to two decimal places. Formula: Payback Period Initial Investment/Annual Cash Flow Payback Period $ years Accounting Rate of Return The accounting rate of return is another non-discounting financial model commonly used in making capital investment decisions. Unlike the payback period model, the accounting rate of return uses income rather than cash flow. Assume that the investment is the same as before: Initial outlay of $100,000 with a five-year useful life and no salvage value under straight-line depreciation. The revenues are as follows: ( Year 1: $20,000, Year 2: $30,000, Year 3: $40,000, Year 4: $50,000 and Year 5: $60,000.) Use the minus sign to indicate a net loss. If an amount is zero, enter "O". If required, enter the accounting rate of return as a decimal (i.e. 0.3)Explanation / Answer
Payback period calculates how long it will take to recover the initial investment/ initial expenses on a project.
Payback period = $100000 / $45000 = 2.22 years
Total Net Income(5 years) = $100000
Average Net Income = Total Income / No. of years = $100000/5 = $20000
Accounting Rate of Return = Average Return/ Average Investment = 20000/100000 * 100 = 20%
#The expense in table above are the depreceiation expenses = 100000/5 = $20000
Year Revenue ($)- Expense($)= Net Income($) 1 20000 20000 0 2 30000 20000 10000 3 40000 20000 20000 4 50000 20000 30000 5 60000 20000 40000 Total 100000Related Questions
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