Question

Offshore Drilling Products, Inc., imposes a payback cutoff of three years for its international investment projects. Assume the company has the following two projects available. |

Year | Cash Flow A | Cash Flow B | ||

0 | –$ | 49,000 | –$ | 94,000 |

1 | 19,000 | 21,000 | ||

2 | 25,400 | 26,000 | ||

3 | 21,000 | 33,000 | ||

4 | 7,000 | 246,000 | ||

Requirement
1: |

What is the payback period for each project? |

Payback period | |

Project A |
_______________years |

Project B |
________________years |

Answer #1

Project A:

Cumulative cash flow for year 0 = -49,000

Cumulative cash flow for year 1 = -49,000 + 19,000 = -30,000

Cumulative cash flow for year 2 = -30,000 + 25,400 = -4,600

cumulative cash flow for year 3 = -4,600 + 21,000 = 16,400

4,600 / 21,000 = 0.219

Payback period = 2 + 0.219 = 2.22 years

Project B:

Cumulative cash flow for year 0 = -94,000

Cumulative cash flow for year 1 = -94,000 + 21,000 = -73,000

Cumulative cash flow for year 2 = -73,000 + 26,000 = -47,000

cumulative cash flow for year 3 = -47,000 + 33,000 = -14,000

cumulative cash flow for year 4 = -14,000 + 246,000 = 232,000

14,000 / 246,000 = 0.0569

Payback period = 3 + 0.0569 = 3.06 years

Offshore Drilling Products, Inc., imposes a payback cutoff of
three years for its international investment projects. Assume the
company has the following two projects available.
Year
Cash Flow A
Cash Flow B
0
–$
49,000
–$
94,000
1
19,000
21,000
2
25,400
26,000
3
21,000
33,000
4
7,000
246,000
Requirement 1:
What is the payback period for each project? (Enter
rounded answers as directed, but do not use the rounded numbers in
intermediate calculations. Round your answers to 2...

Stenson, Inc., imposes a payback cutoff of three years for its
international investment projects. Assume the company has the
following two projects available.
Year
Cash Flow A
Cash Flow B
0
–$
47,000
–$
92,000
1
18,000
20,000
2
24,200
25,000
3
20,000
34,000
4
6,000
248,000
What is the payback period for each project? (Do not
round intermediate calculations and round your answers to 2 decimal
places, e.g., 32.16.)

Global Toys, Inc., imposes a payback cutoff of three years for
its international investment projects. Assume the company has the
following two projects available.
Year
Cash Flow A
Cash Flow B
0
–$
48,000
–$
93,000
1
18,500
20,500
2
24,800
25,500
3
20,500
33,500
4
6,500
247,000
What is the payback period for each project? (Do not
round intermediate calculations and round your answers to 2 decimal
places, e.g., 32.16.)
Payback
period
Project A
years
Project B
years

Calculating Payback. Tulip Mania, Inc., imposes
a payback cutoff of 3 years for its international investment
projects. They are currently evaluating the following two
projects:
1. Using the following table please find the payback period for
project A, and for project B
2. What project should Tulip Mania accept.
3. Please show and explain the work using a finnancial
calculator.
Year
Cashflow (A)
Cashflow (B)
0
-70000
-100000
1
48000
10000
2
25000
25000
3
15000
40000
4
5000
100000

5 Macy's uses the Payback Period method for evaluating its
projects. The Payback Period cut-off rule is 3 years. Macys is
considering the following project: Cash Flow for Year Project A 0
-$75,000 1 $33,000 2 $36,000 3 $19,000 4 $9,000 Required: a) Should
macys accept or reject Project A why or why not?

Elysian Fields, Inc., uses a maximum payback period of 6 years
and currently must choose between two mutually exclusive projects.
Project Hydrogen requires an initial outlay of $26,000; project
Helium requires an initial outlay of $33,000. Using the expected
cash inflows given for each project in the following table,
calculate each project's payback period. Which project meets
Elysian's standards?
1 $5,500 $7,500
2 $5,000 $7,500
3 $7,500 $7,000
4 $4,000 $4,500
5 $3,500 $5,500
6 $2,000 $4,500

Consider the following two mutually exclusive projects:
Year
Cash Flow (A)
Cash Flow (B)
0
–$40,000
–$180,000
1
25,000
15,000
2
22,000
45,000
3
20,000
50,000
4
15,000
275,000
The required return on these investments is 11 percent.
Required:
(a)
What is the payback period for each project?
(Do not round intermediate
calculations. Round your answers to 2 decimal
places (e.g., 32.16).)
Payback period
Project A
years
Project B
years ...

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