Question

re: 0 of 10 pts 13 of 18 (14 complete) HW Score: 66.07%, 118.92 of 180 pm 1-22 (similar to) 3 Question Help Payback and discounted payback period calculations) The Bar-None Manufacturing Co. manufactures fence panels used in cattle feed lots throughout the Midwest. Bar-None's management is considering three vestment projects for next year but doesn't want to make any investment that requires more than three years to recover the firm's initial vestment. The cash flows for the three projects (Project A, Project B, and Project C) are as follows: !!! a. Given Bar-None's three-year payback period, which of the projects will qualify for acceptance? b. Rank the three projects using their payback period. Which project looks the best using this criterion? Do you agree with this ranking? Why or why not? C. Y Bar-None uses a discount rate of 9.8 percent to analyze projects, what is the discounted payback period for each of the three projects? If the firm still maintains its three-year payback policy for the discounted payback, which projects should the firm undertake? a. Given the cash flow information in the table, the payback period of Project Aisyears. (Round to two decimal places.) Data Table Year Project A $(950) Project C $(6,500) 1,200 550 Project B $(9,500) 6,000 2,000 2,000 2,000 2,000 225 190 1,200 2,500 2,500 2,500 70 490 Print Done Clear All Enter your answer in the answer box and then click Check Answer. 13 remaining POU SO Pgon End - Home Prtson 7 8 * @r w

Answer 1

rate positively ..........let me know if you need any clarification..

					cumulative cash flow
	year	A	B	C	A	B	C
	0	-950	-9500	-6500	-950	-9500	-6500
	1	550	6,000	1,200	-400	-3,500	-5,300
	2	225	2,000	1,200	-175	-1,500	-4,100
	3	190	2,000	2,500	15	500	-1,600
	4	70	2,000	2,500	85	2,500	900
	5	490	2,000	2,500	575	4,500	3,400
Ans a)					Calculation
	Payback A =		2.92	year	2+(175/190)
	Payback B =		2.75	year	2+(1500/2000)
	Payback C =		3.64	year	3+(1600/2500)
	Based on payback project A and B will qualify for investment
Ans b)	Ranking
	Project	Rank
	A	2
	B	1
	C	3
Ans c)
	Decision		Projcect B should be selected
		i	ii	iii	iv	v=i*iv	vi=ii*iv	vii=iii*iv	v=i*iv	vi=ii*iv	vii=iii*iv
						Present value			Discounted cumulative cash flow
	year	A	B	C	PVIF @ 9.8%	A	B	C	A	B	C
	0	-950	-9500	-6500	1	(950)	(9,500)	(6,500)	(950)	(9,500)	(6,500)
	1	550	6000	1200	0.910747	501	5,464	1,093	(449)	(4,036)	(5,407)
	2	225	2000	1200	0.82946	187	1,659	995	(262)	(2,377)	(4,412)
	3	190	2000	2500	0.755428	144	1,511	1,889	(119)	(866)	(2,523)
	4	70	2000	2500	0.688003	48	1,376	1,720	(71)	510	(803)
	5	490	2000	2500	0.626597	307	1,253	1,566	236	1,763	763
	Discounted payback
	A	4.23	year
	B	3.63	year
	C	4.51	year
	None of the project qualify for lower than 3 year backback . Therefore no project will be investable based on 3 year discounted payback period