Purchase Solution

payback period

Not what you're looking for?

Ask Custom Question

Your company is considering two mutually exclusive investment options. Each involves an initial investment of $250,000. Option A is a bit more risky than option, therefore the discount rate for Option A is 15% and the discount rate for Option B is 12%. The cash flows are as follows:

Year Option A Option B
1 $50,000 $75,000
2 $50,000 $75,000
3 $125,000 $75,000
4 $100,000 $75,000
5 $75,000 $75,000

a) What is the payback period of each option? (round to the nearest month)
b) What is the net present value of each option?
c) Which option would you choose? Why?

You invest $15,000 each year for 20 years at 10 percent.

a) What is the value after 20 years?
b) What is the present value of the amount calculated in (a) above, if inflation is expected to average 3% per year for the next 20 years?

Calculate the weighted average cost of capital (to the nearest tenth of a percent) given the following assumptions:

Ideal Capital Structure:
Debt 20%
Preferred Stock 30%
Common Equity 50%

Other Information
Tax Rate 40%
Growth Rate 12%
Common Price $15.00
Common Dividend $.45
Preferred Price $52.00
Preferred Dividend $3.00
Preferred Flotation Cost $2.00
Bond Yield 8%

Purchase this Solution
Solution Summary

What is the payback period of each option? (round to the nearest month)

Purchase this Solution
Free BrainMass Quizzes
Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.

Lean your Process

This quiz will help you understand the basic concepts of Lean.

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

View More Free Quizzes
Related BrainMass Solutions

  • Use of the Payback Period

    The payback period could be used to determine the payback period in various industry groupings.

  • Payback Period Methid and Discounted Payback Method

    12989 Payback Period Methid and Discounted Payback Method What are the differences between the payback period method and the discounted payback method? Which method is better in valuating investments?

  • Disadvantages of Cash Payback Method

    Payback period for project A is $3,000/ $1,000 = 3 years Payback period for project B is $2,000/ $800 = 2.5 years According to the cash payback method, project B is superior (payback period of 2.5 years against a payback period of 3 years for project

  • Payback and Net Present Value Methods for Dino Corporation

    Payback period = Initial investment/Expected return per year Investment A Payback period = 100,000/30,000 = 3.33 years Investment B Payback period = 50,000/25,000 = 2 years Investment C Payback period = 30,000/8,000 = 3.75 years Investment

  • Payback Period

    4 16,000 26,000 =2 + 5000 / 15000 5 30,000 56,000 56000 Payback period= 2.33 years Answer: Payback period Investment A: 4 years Investment B: 2.33 years Based on Payback criteria Investment

  • Dino Corporation

    Payback period = Initial investment/cash flow per year Investment A Payback period = 100,000/30,000 = 3.33 years Investment B Payback period = 50,000/25,000 = 2 years Investment C Payback period = 30,000/8,000 = 3.75 years Investment D

  • Payback period

    Yes the company should accept the project as the payback period of the project is less than the maximum payback period acceptable The expert determines the payback period for the project.

  • Payback period

    3782 Insight into the payback period method in accounting. What is the payback period method in accounting? Payback Period: The payback period is simply the time taken by the project to return the initial investment.

  • This posting addresses the Payback Period Ratio

    the payback period has ended.

  • Payback Period

    What is the project's simple, regular payback? Payback period is the period in which the initial investments of the project is recovered.

View More Related Solutions