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# I wasn't sure about the payback period for both problem a and b. If...

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Problem 26.2A, page 1138 a. Proposal A (1) Payback period - 4.44 Years Estimated annual net cash flows = \$56,000 + \$70,000 = \$126,000 Amount to be invested \$560,000 = = 4.44 years Estimated annual net cash flows \$126,000 (2) Return on average investment - 20% Original cost + Salvage value \$560,000 Average investment = = = \$280,000 2 2 Average estimated net income \$56,000 = 20% Average investment \$280,000 (3) Net present value, discounted at an annual rate of 12 percent Present value of expected annual cash flows (\$126,000 x 4.968) \$625.968 Cost of investment 560.000 Net present value of proposed investment \$65.968

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b. Proposal B (1) Payback period - 4.9 years Estimated annual net cash flows = \$40,000 + \$60,000 = \$100,000 Amount to be invested \$490,000 = 4.9 years Estimated annual net cash flows \$100,000 (2) Return on average investment - 14% Original cost + Salvage value \$490,000 + \$70,000 Average investment = = = \$280,000 2 2 Average estimated net income \$40,000 Average investment \$280,000 14% (3) Net present value, discounted at an annual rate of 12 percent Present value of expected annual cash flows (\$100,000 x 4.564) \$456.400 Present value of proceeds from disposal (\$70,000 * 0.452) 31.640 Total present value of investment's future cash flows \$488.040 Cost of investment 490.000 Net present value of proposed investment \$(1,960)

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I wasn't sure about the payback period for both problem a and b. If they are wrong, then my net present values would be wrong. Any help would be appreciated.

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