Purchase Solution

Diaz Camera Company: Payback and NPV

Not what you're looking for?

Ask Custom Question

12/6. Diaz Camera Company is considering two investments, both of which cost $10,000. The cash flows are as follows:

Year Project A Project B
1 . .$6,000 $5,000
2 . . 4,000 3,000
3 . . 3,000 8,000

a. Which of the two projects should be chosen based on the payback method?

b. Which of the two projects should be chosen based on the net present value method? Assume a cost of capital of 10 percent.

c. Should a firm normally have more confidence in answer a or answer b?

Purchase this Solution
Solution Summary

Payback and NPV are calculated for comparing the two investments.

Solution Preview

See attached file where formatting is conserved

a. Which of the two projects should be chosen based on the payback method?
Payback period is the number of years in which the initial investment is recouped

Project A
Year Cash flow Cumulative cash flow

0 (10,000) (10,000)
1 6,000 (4,000)
2 4,000 0 Payback period= 2 years
3 3,000 3,000
3000

Payback period of Project ...

Purchase this Solution
Free BrainMass Quizzes
Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Basic Social Media Concepts

The quiz will test your knowledge on basic social media concepts.

Situational Leadership

This quiz will help you better understand Situational Leadership and its theories.

Basics of corporate finance

These questions will test you on your knowledge of finance.

View More Free Quizzes
Related BrainMass Solutions

  • Net Present Value and Payback- Diaz Camera Company

    19431 Managerial Finance 476(II) Selection of projects based on NPV and Payback criteria 6. Diaz Camera Company is considering two investments, both of which cost $10,000.

  • Investments - Payback Method vs. Net Present Value Method

    24301 Investments - Payback Method vs. Net Present Value Method Diaz Camera Company is considering two investments, both of which cost $10,000. The cash flows are attached. a) Which of the two projects should be chosen based on the payback method?

  • Project and risk

    The solution explains the impact on payback, discounted payback, NPV, IRR, PI, and MIRR of a company undertaking a highly risky project.

  • Capital Rationing Using the Payback and Net Present Value Methods

    By using multiple criteria firm can fulfill several objective, while payback ensures that the cash is not locked in the projects for long and improves the liquidity of the company, the NPV ensures that the firm is maximizing its net worth.

  • Incremental cash flows

    Calculate the payback period (P/B) and the net present value (NPV) for the project. Assume the company has a P/B (payback) policy of not accepting projects with life of over 3 years.

  • Payback method for capital budgeting decisions

    TRUE If the company has a 4-year payback rule, it will never accept projects with more than 4-year payback, and it will accept projects with less than 4-year payback, based on NPV. b.

  • NPV and Payback Period for two projects; which should be accepted

    The company will accept project G. The expert examines NPV and payback periods for two projects. Which one should be accepted is determined.

  • Payback period, discounted payback, NPV, IRR

    39471 Capital Budgeting-payback period, discounted payback, NPV, IRR Question 1 Assume you have just been promoted junior financial manager of a company. You are very smart and are planning to be promoted in the next 2-2.5 years.

  • Walker Landscaping Company end of year cash flows

    This solution is comprised of a detailed explanation to calculate the project's: a) the project's payback, b) IRR and c) NPV and answer whether the project should be undertaken.

View More Related Solutions