Question

9) Investment A: Year: 0 Cash flow: $14,000 1 2 3 $6000 $6000 $6000 4 $6000 5 $6000 Investment B: Year: 0 Cash flow: $15,000 1 2 3 4 5 $7000 $7000 $7000 $7000 $7000 Investment C: 0 Cash flow: $18,000 Year: 1 $12,000 2 $2000 3 $2000 4 $2000 5 $2000 The cash flows for three projects are shown above. The cost of capital is 9.5%. If an investor decided to take projects with a payback period two years or less, which of these projects would he take? A) Investment A C) Investment C B) Investment B ) none of these investments D

Answer 1

Date: _/ /__ Page no:_ g) Calculations Inuestment A aj Dritial Investment - - $19.000 (Year O Cash - Outflaus) 61 Annual Cashflow Year Cashflows Cumulative Cashflow (in $) 61,000 6.000 6.000 6,000 6.000 6.000 12.000 18.000 24.000 30,000 Payleach & Poriad - Year before full Recamery Unrecovered Cast at the Start of the year Cashflow during the year = 2 + 14.000 - 12.000 6.000 year Paulaack Period = 2.33 0

Date:_ Page Inwestmant B as b) Initial nuestment = – $15.000 Year o Cash Outflows) Annual Cashflow Year Cashflows Cumulative Cashflaws (im $) 7.000 7.000 7.000 7.000 7.000 7,000 14.000 21,000 28,000 35.000 Payleach - Periad Year before full Recovery & Unrecovered Cost at the Start of the Year Cashflaus at the year = 2 + 15.000-14.000 7.000 = 2.14 years

Investment c a Initial Inuestment – – $18.000 (Year o Cash Outflows) bi Annual Cashflow Year Cashflow Cumulative Cashflaus (im $) 2 12.000 2.000 2.000 2,000 2,000 12,000 14000 16.000 18.000 20,000 Payleach - Year before & Period full Recauany Unrecovered Cost at the Start of the Year start of the the war - year

Inuestment Papleack Poriad 2-33 year 2.14 year с 4 year If Company decided to take projects with a payleach period two year or Less do a a Here in all Investments Payleach Periad is More than 2 year So We do not take any of the projects se, ceptian Dj None of these Investments is correct.