The payback period for the following set of cash flows is years. (Round your ans

Question

The payback period for the following set of cash flows is  years. (Round your answer to 2 decimal places. (e.g., 32.16))

Year Cash Flow
  0 ?$4,800          
  1 2,600          
  2 1,900          
  3 1,600          
  4 2,800          

Buy Coastal, Inc., imposes a payback cutoff of 3 years for its international investment projects. Suppose the company has the following two projects available. Project A has payback period of years, while project B has a payback period of  years. Therefore, it should
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accept
reject
project A and
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reject
accept
project B. (Round your answers to 3 decimal places. (e.g., 32.162))

Year Cash Flow (A) Cash Flow (B)
  0 ?$48,000         ?$71,000        
  1 27,000         9,000        
  2 38,000         17,000        
  3 18,000         35,000        
  4 4,000         274,000       

An investment project has annual cash inflows of $7,700, $8,500, $8,600, and $9,000, and a discount rate of 7 percent. If the initial cost is $23,200, the discounted payback period for these cash flows is  years. (Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

1)

The payback period for the following set of cash flows is 2.19 years.

Working

   Payback period = 2+ (4800-2600-1900)/1600 = 2.19 Years

2)

Buy Coastal, Inc., imposes a payback cutoff of 3 years for its international investment projects. Suppose the company has the following two projects available.

Project A has payback period of 1.553 years, while project B has a payback period of 3.036 years.

Therefore, it should accept project A and reject Project B.

Working

Project A has payback period = 1+ (48000-27000)/38000

Project A has payback period = 1.553 years

Project B has a payback period = 3 + (71000-9000-17000-35000)/274000

Project B has a payback period = 3.036 Years

3)

An investment project has annual cash inflows of $7,700, $8,500, $8,600, and $9,000, and a discount rate of 7 percent.

If the initial cost is $23,200, the discounted payback period for these cash flows is 3.96 years.

Working

PV of annual cash inflow = 7700/1.07 + 8500/1.07^2 + 8600/1.07^3 + 9000/1.07^24

PV of annual cash inflow = 23,414.97

Discounted payback period =Initial Cost / PV of annual cash inflow* Total No of Year

Discounted payback period = 23200/23414.97 * 4

Discounted payback period = 3.96 Years

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