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# Payback Period and Discounted Payback Period

### Investment Payback

You are considering an investment in a project with a life of eight years, an initial outlay \$120,000, and annual after-tax cash flows of \$52,000. The project also requires an increase in inventories of \$22,000. This \$22,000 investment in inventory is required at the outset of the project and will be released when the project i

### Finance: project cash flows, interest, payback period, capital investment decisions

When calculating the cash flows for a project, you should include sunk costs. True False --- When calculating the cash flows for a project, you should include interest expenses. True False --- One strength of the payback period is that it takes fully into account the time factor in the value of money

### What is the payback period for Olinick Corporation's new project?

Question 26: (2 points) (Ignore income taxes in this problem.) Olinick Corporation is considering a project that would require an investment of \$243,000 and would last for 8 years. The incremental annual revenues and expenses generated by the project during those 10 years would be as follows: Sales

### Pay back period

Just need some help getting started here... An investment project provides cash inflows of \$830 per year for 8 years. What is the project payback if the initial cost is \$3400? What if it is \$4450? What if it is \$6800?

### Payback Method: which alternative would you select?

Assume a \$40,000 investment and the following cash flows for two alternatives. Year Investment X Investment Y 1 \$6,000 \$15,000 2 \$8,000 \$20,000 3 \$9,000 \$10,000 4 \$17,000

### A firm's average collection period has decreased significantly from the previous year. Which of the following could possibly explain the results?

1. A firm's average collection period has decreased significantly from the previous year. Which of the following could possibly explain the results? a. Customers are paying off their accounts quicker. b. Customers are taking longer to pay for purchases. c. The firm has a strict collection policy. d. Both a and c. 2. W

### Payback period and accounting rate of return on investment

See pdf file. Exercise 11-5: Payback period and accounting rate of return on investment L.O. P1, P2 B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost \$360,000 with a six-year life and no salvage value. It will be depreciated on a

Question 16: (1 point) (Ignore income taxes in this problem.) Chee Company has gathered the following data on a proposed investment project: Investment required in equipment \$211,218 Annual cash inflows \$47,000 Salvage value \$0 Life of the investment 10 years Required rate of return 11% The payback peri

### Description of Payback

Tapley Dental Associates is considering a project that has the following cash flow data. What is the project's payback (in years)? Year: 0 1 2 3 4 5 Cash flows: -\$1,000 \$300 \$310 \$320 \$330 \$340 a-2.11 b-2.5 c-2.71 d-3.05

### Holding period and gain to Rita for gift of stock

Che acquires 50 shares of Blue Corporation stock on November 1, 2006, for \$43,000. On May 10, 2007, when the stock is worth \$56,000, Che transfers the shares to Rita, his daughter, as a gift on her 21st birthday. No gift tax is paid by Che. On August 10, 2007, Rita sells the shares for \$59,000 to get cash for her college tuit

### Calculating Payback and Discounted Payback Period

A project has an initial cost of \$52,125, expected net cash inflows of \$12,000 per year for 8 years, and a cost of capital of 12%. What is the project's payback period and discounted payback?

### Federal Taxation: gifts, inheritance, holding period, recognized gain or loss, like kind exchange for foreign property.

1. Abner, age 80 and in poor health, owns investment land with an adjusted basis of \$50,000. He is considering transferring it to Stella, his niece. Regarding Stella's income tax position, should the transfer to her be by gift or by inheritance? (Assume neither gift tax nor estate tax would be due, and that the property is not

### National Telephone and Telegraph (NTT): Percentage Holding

National Telephone and Telegraph (NTT) company's common stock currently sell for \$60 per share. NTT is expected to pay a \$4 dividend during the coming year and the price of stock is expected to increase to \$65 a year from now. A. Determine the expected (ex-ante) percentage holding period return on NTT common stock. B. 1

### Holding period return problem

Suppose a Midwest Telephone and Telegraph (MTT) Company bond, maturing in 1 year, can be purchased today for \$975. Assuming that the bond is held until maturity, the investor will receive \$1,000 (principal) plus 6 percent interest (that is, 0.06 3 \$1,000 5 \$60). Determine the percentage holding period return on this investme

### Forecast:A forecasting method is used to predict sales of bibles with weights for the expected sales. in the last five periods.Period 1 2 3 4 5 6 7 8 Obs 23 28 33 26 21 38 32 41Weights .1 .1 .2 .2 .4+-a. What is the one step ahead forecast for period 9?b. One step ahead for period 6 show the work!

A forecasting method is used to predict sales of bibles with weights for the expected sales. in the last five periods. Period 1 2 3 4 5 6 7 8 Obs 23 28 33 26 21 38 32 41 Weights .1 .1 .2 .2 .4+- a. What is the one step ahead forecast for period 9? b. One step ahead for period 6 show the work!

### Payback Period

Why is the payback period not a preferred method in the capital budgeting decision-making process? Which decision-making criteria is the best to use for capital budgeting decisions? Why?

### Cash Flows: select an alternative under the payback method

15. Assuming a \$50,000 investment and the following two cash flows, which of the two alternatives would you select under the payback method of evaluating investments? Year Investment A Investment B 1 \$10,000 \$20,000 2 11,000 25,000 3 13,000 15,000 4 16,000 _ 5 30

### Inventory product and period costs

When maintaining inventory, there are product costs and period costs. Explain the distinction between the two. Give an example of each. And What is the accounts receivable turnover ratio, and what type of information does it provide?

### Rate of Return and Payback Method

Otthar's Amusement center contains a number of electronic games as well as a miniature golf course and various rides located outside the building. Otthar Luvinson, the owner, would like to construct a water slide on one portion of his property. Otthar has gathered the following information about the slide: a. Water slide eq

### Payback period - Need understanding Lathe

Norwich Tool, a large machine shop, is considering replacing one of its lathes with either of two new lathes?lathe A or lathe B. Lathe A is a highly automated, computer-controlled lathe; lathe B is a less expensive lathe that uses standard technology. To analyze these alternatives, Mario Jackson, a financial analyst inflows

### Profitability Index and the Payback Period

Jones Brothers require a 14 percent rate of return Year A B 0 -30,000 -60,000 1 10,000 20,000 2 10,000 20,000 3 10,000 20,000 4 10,000 20,000 5 10,000 20,000 A.COMPARE THE NPV OF BOTH PROJECTS B

### Payback Period

A project that costs \$2,500 to install will provide annual cash flows of \$600 for the next 6 years. If the firm accepts projects with payback periods of less than 5 years should the project be accepted?

### Calculating Returns: Calculate the average return for Treasury bills and the average annual inflation rate (consumer price index) for this period. Calculate the standard deviation of Treasury bill returns and inflation over this period. Calculate the average real return for Treasury bills over this period.

Calculating Returns Refer to the following table: Year T-Bill Return Inflation 1973 0.0729 0.0871 1974 0.0799 0.1234 1975 0.0587 0.0694 1976 0.0507 0.0486 1977 0.0545 0.0670 1978 0.0764 0.0902 1979 0.1056 0.1329 1980 0.1210 0.1252 Requirement 1: Calculate the average return for Treasury bills and the

### Detailed Explanation to Payback period

Caledonia is considering two additional mutually exclusive projects. The cash flows associated with these projects are as follows: YEAR PROJECT A PROJECT B 0 -\$100,000 -\$100,000 1 32,000 0 2 32,000 0 3 32,000 0 4 32,000 0 5 32,000 \$200,000 The required rate of return on these projects is 11 percent. 1. What is each proj

### What are the weaknesses of the payback method?

What are the weaknesses of the payback method? Briefly discuss the concept of risk and the ways it might be measured. When is the coefficient of variation a better measure of risk than the standard deviation? Text for the course is Foundations of Financial Management (11th ed.) by Block and Hirt.

### Payback period for project costing \$400,000 yields net income

What is the payback period for a project costing \$400,000 that yields net income before taxes of \$100,000 with a tax rate of 15%? What if taxes increase to 25%? How do tax rates impact investment?

### Payback Period investment

Assume a \$50K investment and the following cash flows for two alternative. Which alternative would you select under the payback method? Year investment A Investment B 1 \$10,000 \$20,000 2 11,000 25,000 3 13,000 15,000

### Dyna Systems is considering a project that has the following cash flow data. What is the project's payback?

Dyna Systems is considering a project that has the following cash flow data. What is the project's payback? Year 0 1 2 3 Cash Flows -\$1,000 \$500 \$500 \$500

### Payback Method: Orbitz Company

Orbitz Company has gathered the following data on a proposed investment project: Investment Required Equipment: \$240,000 Annual Cash Inflows: \$50,000 Salvage Value: \$0 Life of the Investment: 8 years Required Rate Return: 10% The payback period for the investment is closest to: a) 5.0 years b) 0.2 years c) 2.5 yea

### You are considering a project with an initial cost of \$4,300.

You are considering a project with an initial cost of \$4,300. What is the payback period for this project if the cash inflows are \$550, \$970, \$2,600, and \$500 a year over the next four years, respectively.