Question

Taggart Inc. is considering a project that has the following cash flow data. What is the project's payback? Year Cash flows -$925 12 $500 $500 $500 0 1.85 years 0 1.42 years 0 2.29 years O 1.96 years

Answer 1

1.

Payback Period is the time when initial investment comes back as cash inflow

Payback Period = 1(500) + 0.85(425/500)

Payback Period = 1.85 years

2.

Total Value of Firm = P/E(Earning)

Total Value of Firm = 15(250,000)

Total Value of Firm = $3,750,000