Question

Cash Payback Method

Lily Products Company is considering an investment in one of two new product lines. The investment required for either product line is $540,000. The net cash flows associated with each product are as follows:

Year |
Liquid Soap |
Body Lotion |
||

1 | $170,000 | $ 90,000 | ||

2 | 150,000 | 90,000 | ||

3 | 120,000 | 90,000 | ||

4 | 100,000 | 90,000 | ||

5 | 70,000 | 90,000 | ||

6 | 40,000 | 90,000 | ||

7 | 40,000 | 90,000 | ||

8 | 30,000 | 90,000 | ||

Total | $720,000 | $720,000 |

**a.**
Recommend a product offering to Lily Products Company, based on the
cash payback period for each product line.

Payback period for liquid soap | |

Payback period for body lotion |

**b.**
The project with the net cash flows in the early years of the
project life will be favored over the one with the net cash flows
in the initial years.

Answer #1

b) TRUE

The Short-Line Railroad is considering a $170,000 investment in
either of two companies.
The cash flows are as follows:
Year Electric
Co. Water Works
1 $
90,000
$ 40,000
2
40,000
40,000
3
40,000
90,000
4 – 10
15,000
15,000
a. Compute the payback period for both companies. (Round your
answers to 1 decimal place.)
.Electric Co: ____________years
Water Words ____________years

Cash Payback Method (Even cash flows)
Suppose that a particular investment required an up-front
capital outlay of $100,000. This investment is expected to yield
cash flows of $40,000 per year for 10 years. What is the payback
period for this investment? If required, round your answer to two
decimal places.
Cash Payback Period = $ / $ = years
Payback Period (Uneven cash flows)
When the annual cash flows are unequal, the payback period is
computed by adding the annual cash...

McMorris Publications Inc. is considering two new magazine
products. The estimated net cash flows from each product are as
follows:
Year
Canadian Cycling
European Hiking
1
$142,000
$119,000
2
116,000
139,000
3
100,000
95,000
4
91,000
67,000
5
28,000
57,000
Total
$477,000
$477,000
Present Value of $1 at Compound
Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2
0.890
0.826
0.797
0.756
0.694
3
0.840
0.751
0.712
0.658
0.579
4
0.792
0.683
0.636
0.572
0.482...

Cash payback period for a Service Company
Prime Financial Inc. is evaluating two capital investment
proposals for a drive-up ATM kiosk, each requiring an investment of
$200,000 and each with an eight-year life and expected total net
cash flows of $320,000. Location 1 is expected to provide equal
annual net cash flows of $40,000, and Location 2 is expected to
have the following unequal annual net cash flows:
Year 1
$78,000
Year 5
$42,000
Year 2
58,000
Year 6
34,000...

Sky Enterprises is considering an investment project
with the following cash flows:
Year Cash
Flow
0
-$100,000
1
30,000
2
40,000
3
60,000
4
90,000
The company has a 7% cost of capital. What is the project’s
discounted payback period?
A. 2.76 years
B. 1.86 years
C. 1.86 years
D. 1.67 years
E. more than 3 years

Cash Payback Period, Net Present Value Method, and Analysis
Elite Apparel Inc. is considering two investment projects. The
estimated net cash flows from each project are as follows:
Year
Plant Expansion
Retail Store Expansion
1
$160,000
$133,000
2
130,000
157,000
3
113,000
107,000
4
102,000
75,000
5
32,000
65,000
Total
$537,000
$537,000
Each project requires an investment of $290,000. A rate of 10%
has been selected for the net present value analysis.
Present Value of $1 at Compound
Interest
Year...

(Discounted payback period) Sheinhardt Wig Company is
considering a project that has the following cash flows: If the
project's appropriate discount rate is 9 percent, what is the
project's discounted payback period? The project's discounted
payback period is nothing years. (Round to two decimal
places.)
YEAR PROJECT CASH FLOW
0 -60,000
1 20,000
2 50,000
3 65,000
4 55,000
5 40,000

Cash Payback Period, Net Present Value Method, and Analysis
Elite Apparel Inc. is considering two investment projects. The
estimated net cash flows from each project are as follows:
Year
Plant Expansion
Retail Store Expansion
1
$128,000
$107,000
2
105,000
126,000
3
91,000
86,000
4
82,000
60,000
5
25,000
52,000
Total
$431,000
$431,000
Each project requires an investment of $233,000. A rate of 15%
has been selected for the net present value analysis.
Present Value of $1 at Compound
Interest
Year...

Cash Payback Period, Net Present Value Method, and Analysis
Elite Apparel Inc. is considering two investment projects. The
estimated net cash flows from each project are as follows:
Year
Plant Expansion
Retail Store Expansion
1
$150,000
$126,000
2
123,000
147,000
3
106,000
101,000
4
96,000
71,000
5
30,000
60,000
Total
$505,000
$505,000
Each project requires an investment of $273,000. A rate of 12%
has been selected for the net present value analysis.
Present Value of $1 at Compound
Interest
Year...

Your company is considering an
expansion into a new product line. The project cash flows are as
follows:
Year
Project A
0
-$60,000
1
44,000
2
20,000
3
14,000
The
required return for this project is 10%.
What is the NPV for the project?
What is the IRR for the project?
What...

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