Question

Each of the following scenarios is independent. All cash flows are after-tax cash flows.

Required:

1. Brad Blaylock has purchased a tractor for $90,000. He expects to receive a net cash flow of $32,500 per year from the investment. What is the payback period for Jim? Round your answer to two decimal places. _____years

2. Bertha Lafferty invested $382,500 in a laundromat. The facility has a 10-year life expectancy with no expected salvage value. The laundromat will produce a net cash flow of $100,000 per year. What is the accounting rate of return? Enter your answer as a whole percentage value (for example, 16% should be entered as "16" in the answer box). ___%

3. Melannie Bayless has purchased a business building for $336,000. She expects to receive the following cash flows over a 10-year period:

Year 1: $42,000

Year 2: $57,500

Year 3-10: $89,800

What is the payback period for Melannie? Round your answer to one decimal place. ___years

What is the accounting rate of return? Enter your answer as a whole percentage value (for example, 16% should be entered as "16" in the answer box). _____%

Answer #1

1. Payback Period = Initial Investment/Annual Cash Flows = 90,000/32,500 = 2.77 years

2. ARR = Average Net Profit/Average Investment = 100,000/382,500 = 26%

3. Average CF/Year = 81,790

ARR = Average Net Profit/Average Investment = 81,790/336,000 =
24%

Year | Cash Flow | Cumulative CF | Payback |

0 | -336000 | -336000 | |

1 | 42000 | -294000 | |

2 | 57500 | -236500 | |

3 | 89800 | -146700 | |

4 | 89800 | -56900 | 4.63 |

5 | 89800 | ||

6 | 89800 | ||

7 | 89800 | ||

8 | 89800 | ||

9 | 89800 | ||

10 | 89800 |

Payback Period
Each of the following scenarios is independent. Assume that all
cash flows are after-tax cash flows.
Colby Hepworth has just invested $500,000 in a book and video
store. She expects to receive a cash income of $120,000 per year
from the investment.
Kylie Sorensen has just invested $1,620,000 in a new biomedical
technology. She expects to receive the following cash flows over
the next 5 years: $350,000, $490,000, $810,000, $500,000, and
$310,000.
Carsen Nabors invested in a project...

NPV and IRR
Each of the following scenarios is independent. All cash flows
are after-tax cash flows.
The present value tables provided in Exhibit 19B.1 and Exhibit
19B.2 must be used to solve the following problems.
Required:
1. Patz Corporation is considering the purchase
of a computer-aided manufacturing system. The cash benefits will be
$895,000 per year. The system costs $4,104,000 and will last six
years. Compute the NPV assuming a discount rate of 6 percent.
$
Should the company...

NPV and IRR
Each of the following scenarios is independent. All cash flows
are after-tax cash flows.
The present value tables provided in Exhibit 19B.1 and Exhibit
19B.2 must be used to solve the following problems.
Required:
1. Patz Corporation is considering the purchase
of a computer-aided manufacturing system. The cash benefits will be
$787,000 per year. The system costs $4,697,000 and will last nine
years. Compute the NPV assuming a discount rate of 8 percent.
$
Should the company...

NPV and IRR
Each of the following scenarios is independent. All cash flows
are after-tax cash flows.
The present value tables provided in Exhibit 19B.1 and Exhibit
19B.2 must be used to solve the following problems.
Required:
1. Patz Corporation is considering the purchase
of a computer-aided manufacturing system. The cash benefits will be
$854,000 per year. The system costs $4,559,000 and will last ten
years. Compute the NPV assuming a discount rate of 12
percent.
$
Should the company...

Each of the following scenarios is independent. Assume that all
cash flows are after-tax cash flows. Campbell Manufacturing is
considering the purchase of a new welding system. The cash benefits
will be $480,000 per year. The system costs $2,250,000 and will
last 10 years. Evee Cardenas is interested in investing in a
women's specialty shop. The cost of the investment is $280,000. She
estimates that the return from owning her own shop will be $50,000
per year. She estimates that...

Accounting Rate of Return
Each of the following scenarios is independent. Assume that all
cash flows are after-tax cash flows.
Cobre Company is considering the purchase of new equipment that
will speed up the process for extracting copper. The equipment will
cost $4,200,000 and have a life of 5 years with no expected salvage
value. The expected cash flows associated with the project are as
follows:
Year
Cash Revenues
Cash Expenses
1
$6,000,000
$4,800,000
2
6,000,000
4,800,000
3
6,000,000
4,800,000...

Each of the following scenarios is independent. Assume that all
cash flows are after-tax cash flows.
Campbell Manufacturing is considering the purchase of a new
welding system. The cash benefits will be $480,000 per year. The
system costs $2,350,000 and will last 10 years.
Evee Cardenas is interested in investing in a women's specialty
shop. The cost of the investment is $330,000. She estimates that
the return from owning her own shop will be $45,000 per year. She
estimates that...

Each of the following scenarios is independent. Assume that all
cash flows are after-tax cash flows.
Campbell Manufacturing is considering the purchase of a new
welding system. The cash benefits will be $480,000 per year. The
system costs $2,350,000 and will last 10 years.
Evee Cardenas is interested in investing in a women's specialty
shop. The cost of the investment is $330,000. She estimates that
the return from owning her own shop will be $45,000 per year. She
estimates that...

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...

After-Tax Cash Flows
For each of the following independent situations, compute the net
after-tax cash flow amount by subtracting cash outlays for
operating expenses and income taxes from cash revenue. The cash
outlay for income taxes is determined by applying the income tax
rate to the cash revenue received less the cash and noncash
(depreciation) expenses.
A
B
C
Cash revenue received
$92,000
$452,000
$222,000
Cash operating expenses paid
56,000
317,000
147,000
Depreciation on tax return
14,000
32,000
22,000
Income...

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