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Find an article where one of the methods of capital budgeting (net present value, payback period,...

Find an article where one of the methods of capital budgeting (net present value, payback period, profitability index, etc ) is used by a company for a project and describe the result of the project. Based on the method used, did the company move forward with the project or dissolve the project?

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Answer #1

Delta company is planning to buy a machine , knows as machine Z. Machine Z,  would cost $35,000 and would have a useful life of 10 years with zero salvage value. The expected annual cash inflow of the machine is $15,000.

We need to use the payback method to find out weather or not we should purchase this machine. The maximum desired payback period for the machine is 3 years.

So, as the annual cash flows are $15,000,

payback period is = 2 + 5000/15,000

= 2.33 years

RESULT : So, yes the project should be accepted as the payback period is less than the desired payback for this project of 3 years. The company will move forward with the project.

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