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    Considering $542,000 Payback Payback Period Project

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    Raibatul Adawiyah
    The Ball Shoe Company is considering a project costing $542,000 with annual after-tax cash inflows of $75,000 for 10 years. 1) The payback period for this project is 7.2 years (542,000/75,000), which is less than the company's maximum acceptable payback period of 8 years. 2) The company should accept the project because its payback period of 7.2 years is within the company's maximum acceptable payback period of 8 years.

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    Considering $542,000 Payback Payback Period Project

    Uploaded by

    Raibatul Adawiyah
    114 views5 pages
    The Ball Shoe Company is considering a project costing $542,000 with annual after-tax cash inflows of $75,000 for 10 years. 1) The payback period for this project is 7.2 years (542,000/75,000), which is less than the company's maximum acceptable payback period of 8 years. 2) The company should accept the project because its payback period of 7.2 years is within the company's maximum acceptable payback period of 8 years.

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    The Ball Shoe Company is considering a project costing $542,000 with annual after-tax cash inflows of $75,000 for 10 years. 1) The payback period for this project is 7.2 years (542,000/75,000), which is less than the company's maximum acceptable payback period of 8 years. 2) The company should accept the project because its payback period of 7.2 years is within the company's maximum acceptable payback period of 8 years.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    114 views5 pages

    Considering $542,000 Payback Payback Period Project

    Uploaded by

    Raibatul Adawiyah
    The Ball Shoe Company is considering a project costing $542,000 with annual after-tax cash inflows of $75,000 for 10 years. 1) The payback period for this project is 7.2 years (542,000/75,000), which is less than the company's maximum acceptable payback period of 8 years. 2) The company should accept the project because its payback period of 7.2 years is within the company's maximum acceptable payback period of 8 years.

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    © All Rights Reserved
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    Download as pdf or txt
    of 5

    Pi0-1 Payback period The Ball Shoe Company is considering an investment project thar

    requires an initial investment of $542,000 and returns after-tax cash inflows of $75
    per year for 10 years. The firm has a maximum acceptable payback period of 8 vear
    a. Determine the payback period for
    this project.
    b. Should the company accept the project? Why or why not?
    Shell Campine
    P10-3 Choosing between two projects with acceptable payback periods ng
    Gear Inc. is considering two mutually exclusive projects. Each requires an initial
    investment (CF,) of $100,000. John Shell, president of the company, has set a max
    mum payback period of 4 years. The after-tax cash inflows associated with each

    project are shown in the following table.

    Cash inflows (CF)


    Year Project A Project B

    1 $10,000 $40,000
    2 20,000 30,000
    3 30,000 20,000
    A 40,000 10,000
    5 20,000 20,000

    a. Determine the payback period of each project.


    b. Because they are mutually exclusive, Shell must choose onc. Which should the
    Company nvest in?
    c. Explain why one of the projects is a better choice than the other.
    Pi NPV Calculate the net
    present value (NPV) for the following 15-year projects.
    Comment on the acceptability of each. Assume that the firm has a co'st of
    of 9%. capital
    a. Initial investment is $1,000,000; cash inflows are $150,000 per year.
    b. Initial investment is $2,500,000; cash inflows are $320,000 per year.
    C. Initial investment is $3,000,000; cash inflows are $365,000 per year.

    P10-6 NPV for varying costs of capital Le Pew Cosmetics is


    evaluating a new fragrance-
    mixing machine. The machine requires an initial investment of $360,000 and will
    generate after-tax cash inflows of $62,650 per year for 8 years. For each of the costs
    of capital listed, (1) calculate the net present value (NPV), (2) indicate whether to
    accept or reject the machine, and (3) explain your decision.
    a. The cost of capital is 6%.

    b. The cost of capital is 8%.


    C. The cost of capital is 10%.
    NPV: Mutually exclusive projects Hook Industries is considering the replacemer
    onc of ts old metal stamping machines. Thrce alternative replacement machine
    ment o
    undct consideration. The relevant cash flows associated with each are shown in thare
    is 15%.
    the
    tollowing tablc. The firm's cost of capital

    Machine A MachineB Machine C


    Initial investment (CF%) -$85,000 -$60,00o -$130,000
    Year (t) Cash inflows (CF,)
    1 $18,000 $12,000 S50,000
    2 18,000 14,000 30,000
    3 18,000 16,000 20,000
    4 18,000 18,000 20,000
    5 18,000 20,000 20,000
    6 18,000 25,000 30,000
    7 18,000 40,000
    18,000 50,000

    a. Calculate the net present value (NPV) of each press.


    b. Using NPV, evaluate the acceptability of each
    press.
    C. Rank the presses from best to worst,
    c.
    using NPV.
    d. Calculate the profitability index (PI) for each
    press.
    e. Rank the presses from best to worst, using PI.
    NPV and IRR Benson Designs has prepared the following estimates for a long-term
    project it is considering. The initial investment is $18,250, and the project is
    expected to yield after-tax cash inflows of $4,000 per year for 7 years. The firm has
    a 10% cost of capital.
    a. Determine the net present value (NPV) for the project.

    b. Determine the internal rate of return (IRR) for the project.


    c. Would you recommend that the firm accept or reject the project? Explain your
    answer.

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