Question

please answer these questions.

Nothing's Limited is considering investing $140,000 in a project that would provide the following net cash flows: 15. buoulsy.oovioa Eilo eso ni 000,es2eubong o1 bstsq $38,000 $ 38,000 $35,000 $ 33,000 $20,000 Year 1 Year 2 I anidheM awolt ria Year 3 Year 4 00082 Year 5 What is the project's payback period? dairdw to noleibsb it eanm o bordem suley Juoz na toa adt2s20 1nwo art snno 30smtanl no muto lsunne NS 20w odz bna ni teyno snidosm n artt slunls oh uloy in sd bluorde onirlbem roidw adoibni bne onlibemb bedu 16. Over the River Manufacturing purchased a machine for $394,000 with an expected useful life of 5 years and expected salvage value of $24,000. Over the River anticipates a yearly after-tax income of $53,000, earned evenly throughout the year. What is the accounting rate of return on this machine? Puddle Jumper Productions is considering a 4-year project, planning to invest $56,000 now and forecasting cash flows for each year of $18,000. The CEO requires a hurdle rate of 10%. Should this project be accepted? 17. Internal rate of return Accept or Reject Project? Reasoning?

Answer 1

Answer to Q#15 (First question in the list):

The Payback period (nothing but the traditional or conventional recovery period) is the period within which, cash outflows associated with the project can be recovered by the management but without considering time value of money. The answer is expressed in terms of number of periods (may be weeks or months or years, etc.). To calculate the payback period, cumulative cash flows year-by-year shall be calculated and then the year in which cumulative cash flows turns into positive is the payback period. However, in order to calculate exact payback period in decimal places, negative cumulative cash flows of previous year shall be divided by current year's cash flows and the decimal thus calculated shall be added to previous year to the year in which cumulative cash flows turned into positive. Year 0 1 2 4 5 Initial cost -$140,000 $38,000 $38,000 $38,000 $38,000 $35,000 $35,000 $33,000 $33,000 $20,000 $20,000 Annual cash inflows -$140,000 Net cash flow Cumulative cash flow -$140,000 -$102,000 -$64,000 -$29,000 $4,000 $24,000 [Ref: NOTE] It is observed that the cumulative cash flow turns into positive in year-4. Therefore, simple payback period for the given cash flows should be: 3.88 years [3 years ($29000 $33000)] Payback period = NOTE: Cumulative cash flow for year-1 -$140,000 $38,000 -$102,000; year-2 -$102,000 + $38,000 = -$64,000; year-3 = -$64,000 $35,000 -$29,000; year-4 $20,000 $24,000 -$29,000 $33,000 $4,000; year-5 $4,000 =