Question

Question 4 Nubela Manufacturing is considering two alternative investment proposals with the following data: Not yet answered Marked out of 2.00 P Flag question Proposal X Proposal Y Investment $10,700,000 $580,000 Useful life 5 years 5 years Estimated annual net cash inflows for 5 years $2,140,000 $103,000 Residual value $50,000 $26,000 Depreciation method Straight-line Straight-line Required rate of return 12% 13% Calculate the payback period for Proposal X Select one: O A 8 years OB. 4 years O c. 9 years O D. 5 years

Answer 1

Question 4:

D. 5 years

Solution:

For proposal X

Year	Cashflows	Cumulative cash flows
1	$2140000	$2140000
2	$2140000	$4280000
3	$2140000	$6420000
4	$2140000	$8560000
5	$2190000	$10750000

That means the amount of $10700000 is recovered in the fifth year

But the exact time is :

If $2190000 is earned in 365 days then it takes x days to earn $2140000($10700000-$8560000)

Therefore,

x = ($2140000*365)/$2190000

x = ($781100000)/$2190000

x = 356.667

So it takes 4 years + 356.667 days

However, the the exact option is not available so it is taken as 5 years

Question 5:

B. $885326

Solution:

Year	Cash inflows (A)	PV factor @8% (B)	Present value of cash inflows (A*B)
1	$218000	0.926	$201868
2	$218000	0.857	$186826
3	$258000	0.794	$204852
4	$258000	0.735	$189630
5	$150000	0.681	$102150
Total			$885326