Question

12. Johnson Company has the opportunity to invest in two projects. The cash flow for each project is as follows.

Year |
Cash Flow (A) |
Cash Flow (B) |

0 |
$ (50,000.00) |
$ (60,000.00) |

1 |
$ 17,000.00 |
$ 14,000.00 |

2 |
$ 22,000.00 |
$ 15,000.00 |

3 |
$ 16,000.00 |
$ 25,000.00 |

4 |
$ 10,000.00 |
$ 275,000.00 |

Part 1: Assuming Smith Company has a 3 year payback cut off for investing in projects, based on the payback method, which project/projects should the company choose? Show your work on how you came up with the answer.

Answer #1

Payback period is the time frame in which initial investment gets back in the form of returns.

So, let's calculate payback period for both the projects -

The payback period of project A and B is 2.7 years and 3.02
years. As for project A, payback is less than 3 years(cut-off
years), Smith company will select **project A**.

Please comment, in case you need more help on this. Thank you.

Most Company has an opportunity to invest in one of two new
projects. Project Y requires a $320,000 investment for new
machinery with a five-year life and no salvage value. Project Z
requires a $320,000 investment for new machinery with a four-year
life and no salvage value. The two projects yield the following
predicted annual results. The company uses straight-line
depreciation, and cash flows occur evenly throughout each year. (PV
of $1, FV of $1, PVA of $1, and FVA...

Most Company has an opportunity to invest in one of two new
projects. Project Y requires a $320,000 investment for new
machinery with a five-year life and no salvage value. Project Z
requires a $320,000 investment for new machinery with a four-year
life and no salvage value. The two projects yield the following
predicted annual results. The company uses straight-line
depreciation, and cash flows occur evenly throughout each year. (PV
of $1, FV of $1, PVA of $1, and FVA...

Consider the following two mutually exclusive projects:
Year Cash Flow (A) Cash Flow (B)
0 –$244,500 –$14,607
1 29,800 4,237
2 59,000 8,285
3 55,000 13,203
4 410,000 8,788
Whichever project you choose, if any, you require a 6 percent
return on your investment.
a. What is the payback period for Project A?
What is the payback period for Project B?
What is the discounted payback period for Project A?
What is the discounted payback period for Project...

Consider the following two mutually exclusive projects:
Year
Cash Flow (A)
Cash Flow (B)
0
–$218,917
–$16,419
1
25,700
5,985
2
53,000
8,370
3
58,000
13,931
4
420,000
8,655
Whichever project you choose, if any, you require a 6 percent
return on your investment.
What is the discounted payback period for Project A?
What is the discounted payback period for Project B?

Most Company has an opportunity to invest in one of two new
projects. Project Y requires a $340,000 investment for new
machinery with a six-year life and no salvage value. Project Z
requires a $340,000 investment for new machinery with a five-year
life and no salvage value. The two projects yield the following
predicted annual results. The company uses straight-line
depreciation, and cash flows occur evenly throughout each year. (PV
of $1, FV of $1, PVA of $1, and FVA...

Marge Simpson Inc. has following business opportunities with
following cash flow information. Assume Marge’s opportunity cost of
capital is 12%.
Year
Project A
Project B
0
−$20,000
−$20,000
1
15,000
2,000
2
15,000
2,500
3
13,000
3,000
4
3,000
50,000
Calculate profitability index for both projects.
Calculate payback period for both projects.

Marge Simpson Inc. has following business opportunities with
following cash flow information. Assume Marge’s opportunity cost of
capital is 12%.
Year
Project A
Project B
0
−$20,000
−$20,000
1
15,000
2,000
2
15,000
2,500
3
13,000
3,000
4
3,000
50,000
Calculate payback period for both projects.

Most Company has an opportunity to invest in one of two new
projects. Project Y requires a $340,000 investment for new
machinery with a six-year life and no salvage value. Project Z
requires a $340,000 investment for new machinery with a five-year
life and no salvage value. The two projects yield the following
predicted annual results. The company uses straight-line
depreciation, and cash flows occur evenly throughout each year. (PV
of $1, FV of $1, PVA of $1, and FVA...

Most Company has an opportunity to invest in one of two new
projects. Project Y requires a $340,000 investment for new
machinery with a six-year life and no salvage value. Project Z
requires a $340,000 investment for new machinery with a five-year
life and no salvage value. The two projects yield the following
predicted annual results. The company uses straight-line
depreciation, and cash flows occur evenly throughout each year. (PV
of $1, FV of $1, PVA of $1, and FVA...

Marge Simpson Inc. has following business opportunities with
following cash flow information. Assume Marge’s opportunity cost of
capital is 12%.
Year
Project A
Project B
0
−$20,000
−$20,000
1
15,000
2,000
2
15,000
2,500
3
13,000
3,000
4
3,000
50,000
Calculate NPV for both projects.
Calculate IRR for both projects (Hint: the equation of
calculating IRR).
Calculate profitability index for both projects.
Calculate payback period for both projects.
Which business opportunity is better? Use
IRRA=54.7%, IRRB=33.3%, cross over
point=14.1%. (Hint:...

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