Question

Barones mange and is considering three Payback and discounted payback period calculations) The Bar Nana Marutacuring Commutus on punased in case food lots throughout the Mid investment projects for next year but doesn't want to make any investment that requires more than the years to recover the firm's Intl va n The cash flows for the three projects Project A, Project Band Project Care as follows: backley for the counted Gran Bar None's three-year payback period which of the prods will quality for acoplance? h. Fank the three projects using their payback period. Which projects the best using this c on? Do you with this thing? Why or why not? c. I Bar None con le of 10 8 percent to analyze projects, what is the discounted payback period for each of the the the first maintains its to your payback, which projects should the firm undertake? a. Given the cash flow information in the table the payback period of Pro Aisyears. Hound to two decimal places.

Answer 1

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projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Data Review View Add-Ins File Home Insert Page Layout Formulas - 2x % Cut Calibri 11 A = = = V General A A E Copy Paste Format Painter Clipboard Wrap Text Merge Merge & Center Center B I U - D SF $ - % % 4:0 .00 8.9 Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Font Alignment Number Cells BR370 BM BN BO BP BQ BR BS BT BU B V BW BX - 370 371 372 373 374 375 376 PROJECT A PAYBACK PERIOD (PBP) YEAR CFAT -1050 CCFAT -1050 1 530 -520 2 400 -120 3 180 60 4 90 150 5 490 640 377 PBP = 2 + CCFAT2/CFAT3 = 2 + (120/180) = 2.67 YEARS (IGNORE NEGATIVE SIGN OF CCFAT) 378 379 380 381 382 PROJECT B PAYBACK PERIOD (PBP) YEAR CFAT -9500 CCFAT -9500 2 383 3500 6000 -3500 3 3500 3500 4 3500 7000 5 3500 10500 384 385 386 387 PBP = 2.00 YEARS (IGNORE NEGATIVE SIGN OF CCFAT) 388 H invest, EAA MI-np-ir_ REPLACEMENT S HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT BOND STI I RRnpvbeta RATION PBP ARR ferences: JF8 OPTION TO WAIT 20J 130% Rea 0 + ELEB * ENG 30-10-2019

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Data Review View Add-Ins Formulas - 2x Σ AutoSum : A 11 pt General File Home Insert Page Layout % Cut Calibri Ea Copy Paste BI U D Format Painter Clipboard Font AA = = = A Wrap Text Merge Merge & Center - Center SF $ % % , 4:0 .00 :.: Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Fill Clear Sort & Filter Editing Find & Select Alignment Number Cells BT405 BL BM BP BQ BR BS BT BUBV B W 390 391 392 BN BO PAYBACK PERIOD (PBP) YEAR CFAT -7000 CCFAT -7000 800 -6200 800 -5400 3 3500 -1900 4 3500 1600 5 3500 5100 393 394 395 PBP = 3 + CCFAT3/CFAT4 = 3+(1900/3500) = 3.54 YEARS (IGNORE NEGATIVE SIGN OF CCFAT) 396 PROJECTS A & B QUALIFY FOR ACCEPTANCE 397 398 399 b RANK 400 401 402 PAYBACK PERIOD PROJECT 2.00 PROJECT B 2.67 PROJECT A 3.54 PROJECT C 403 404 405 406 407 408 PROJECT B IS BEST NO, PAYBACK PERIOD DOES NOT TAKE INTO ACCOUNT ALL YEARS CASHFLOWS SECONDLY, IT DOES NOT TAKE INTO ACCOUNT TIME VALUE OF MONEY SO THE RANKINGS ARE NOT RELIABLE * DO NOT AGREE invest, EAA MI-np-ir_ REPLACEMENT S HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED H REPLACEMENT BOND I RRnpvbeta RATION PBP ARR ferences: JF8 OPTION TO WAIT BO 130% STI« Rea 0 + OPER 9 * ENG 30-10-2019

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Data Review View Add-Ins File Home Insert Page Layout Formulas - 2x % Cut Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & Clear Filter Editing Find & Select Cells BR BS BT BUBV BW 1 1 Calibri 11 AA = = = pt Wrap Text General E Copy Paste Format Painter BIU - D A Merge & Center - $ % , :.: Clipboard Font Alignment Number BR410 foc BL BM BN BO BP BQ 410 DISCOUNTED PAYBACK PERIOD 411 PROJECT A 412 YEAR 2 413 CFAT -1050 530 400 414 PV FACTOR AT 10.8% 0.9025 0.8146 DISCOUNTED CFAT -1050 478.34 325.82 DISCOUNTED CCFAT -1050 -571.66 -245.84 417 DPBP = 4 + CCFAT4/CFAT5 = 4+ (53.80/293.43) = 419 PROJECT B 421 YEAR 2 422 CFAT -9500 6000 3500 423 PV FACTOR AT 10.8% 0.9025 0.8146 424 DISCOUNTED CFAT -9500 5415.16 2850.94 425 DISCOUNTED CCFAT -9500 -4084.84 -1233.89 3 180 0.7352 132.33 -113.51 4 90 0.6635 59.72 -53.80 5 490 0.5988 293.43 239.63 415 416 418 4.18 YEARS 420 3 3500 0.7352 2573.05 1339.16 4 3500 0.6635 2322.25 3661.41 5 3500 0.5988 2095.89 5757.30 426 DPBP = 2 + CCFAT2/CFAT3 = 2 + (1233.89/2573.05) = 2.48 YEARS 427 428 H invest, EAA MI-np-ir_ REPLACEMENT S HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT BOND I RRnpvbeta RATION PBP ARR ferences: JF17 OPTION TO WAIT BO 130% STI« Rea 0 + ELEB * OENG 30-10-2019

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Data Review View Add-Ins Formulas - 2x 11 A = = = V General File Home Insert Page Layout * Cut Calibri E Copy Paste B I U - Format Painter D Clipboard Font A A Wrap Text Merge Merge & Center Center SF $ - % % 4:0 .00 8.9 Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & Clear Filter Editing Find & Select Alignment Number Cells BM428 BL BM BN BO BP BQ BR BS BT BU BV B W 428 429 430 431 432 433 -7000 PROJECT C YEAR CFAT PV FACTOR AT 10.8% DISCOUNTED CFAT DISCOUNTED CCFAT 800 0.9025 722.02 -6277.98 2 800 0.8146 651.64 -5626.33 3 3500 0.7352 2573.05 3053.28 4 3500 0.6635 2322.25 -731.03 5 3500 0.5988 2095.89 1364.86 434 -7000 -7000 435 436 437 DPBP = 4 + CCFAT4/CFAT5 = 4 + (731.03/2095.89) = 4.35 YEARS 438 439 440 USING DISCOUNTED PAYBACK PERIOD ONLY PROJECT B IS TO BE SELECTED REMAINING 2 PROJECTS HAVE MORE THAN 3 YEARS PAYBACK PERIOD 441 NOTE DISCOUNT RATE CALCULATION 442 443 444 445 446 1ST YEAR 2ND YEAR (1/(1+0.108)^1 (1/(1+0.108)^2 SO ON H invest, EAA MI-np-ir_ REPLACEMENT S HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT BOND I RRnpvbeta RATION PBP ARR ferences: JF8 OPTION TO WAIT BO 130% STI« Rea 0 + O r e 9 * ENG 30-10-2019