File Name: payback period questions and answers .zip
Updated on Jan 05, - PM. Capital Budgeting is one of the main functions in finance management. This uses various techniques to assist management in selecting one project over another.
- Payback and discounted payback
- Chapter #8 Solutions to Questions and Problems 1. Payback ...
- Payback period – Meaning, Usage & Illustrations
Original Investment. The calculation of the payback period depends on the uniformity of annual cash flows. When annual cash flows are not equal i.
Chapter 8. Solutions to Questions and Problems 1. This answer does not make sense since the cash flows stop after eight years, so again, we must conclude the Payback period is never 3.
Payback and discounted payback
Chapter 8. Solutions to Questions and Problems 1. This answer does not make sense since the cash flows stop after eight years, so again, we must conclude the Payback period is never 3. Question , Solutions , Chapter , Problem , Payback , 8 solutions to questions and problems , Solutions to questions and problems.
Link to this page:. To find the crossover rate, we subtract the cash flows from one project from the cash flows of the other project. Here, we will subtract the cash flows for Project B from the cash flows of Project A. Once we find these differential cash flows, we find the IRR. It is irrelevant which cash flows we subtract from the other. From Descartes rule of signs, we know there are two IRRs since the cash flows change signs twice.
If we are evaluating whether or not to accept this project, we would not want to use the IRR to make our decision. Using the profitability index to compare mutually exclusive projects can be ambiguous when the magnitude of the cash flows for the two projects are of different scale.
The Payback period for each project is: A: years B: years b. In this instance, the NPV criterion implies that you should accept project A, while Payback period, IRR, and the profitability index imply that you should accept project B. The final decision should be based on the NPV since it does not have the ranking problem associated with the other capital budgeting techniques.
Accept project N since the NPV is higher. IRR cannot be used to rank mutually exclusive projects. The profitability index cannot be used to rank mutually exclusive projects. To find the crossover rate, we subtract the cash flows from one project from the cash flows of the other project, and find the IRR of the differential cash flows.
We will subtract the cash flows from Project J from the cash flows from Project I. At a higher interest rate, project I becomes more valuable since the differential cash flows received in the first two years are larger than the cash flows for project J. The Payback period for each project is: F: years G: years b. Even though project H does not meet the Payback period of three years, it does provide the largest increase in shareholder wealth, therefore, choose project H.
We will subtract the cash flows from Project S from the cash flows from Project R. Since the initial cash flow is positive and the remaining cash flows are negative, the decision rule for IRR in invalid in this case. The NPV profile is upward sloping, indicating that the project is more valuable when the interest rate increases. Estimating the Payback Period of Additional Insulation Use the equation below to estimate the cost effectiveness of adding insulation in terms of the "years to payback " for savings in heating costs.
Years to payback is the time required for the insulation to save enough fuel from heating at present prices to pay for itself. A simple payback. Periods , Additional , Insulation , Payback , Payback period of additional insulation. The shorter the payback period, the more attractive the investment.
In the case of uneven net annual cash flows, the company determines the cash payback period when the cumulative net cash flows from the investment equal the cost of the investment. SO 2 Describe the cash payback technique. Cash Payback. Accounting , Payback. This charitable event will. The Payback is a funk song by James Brown, the title track from his album of the same name. Ignores cash flows beyond the payback period 3. Ignores the time value of money 4.
Considers the time value of money 2. Considers the riskiness of the project's cash flows through the cost of capital 1. No concrete decision criteria that indicate. The payback period for a project is the time from the initial cash outflow to invest in it until the time when its cash inflows add up to the initial cash outflow.
In other words, how long it takes to get your Capital budgeting techniques, a reading prepared by Pamela Peterson Drake 2. Capital , Budgeting , Capital budgeting , Payback , Capital budgeting capital budgeting. No Entries at the Ramp!! Recent CHS Nutrition. Hi en Wood The newspapers are full of stories about executives repaying bonuses. In fact, there are so many of them under discussion today that it is difficult to know who is repaying what and why.
There are calls for supertaxation of bonuses, new caps on bonuses, mandatory bonus. Terms , Getting , Rights , Roi getting the terms right. Example: marketing. Thank you for your participation! Show more. Related documents. Estimating the Payback Period of Additional Insulation www. The Big Payback - taxtv.
Advantage and disadvantages of the different capital Capital budgeting techniques - educ. Open Team Bass Tournaments www. Hi-En 14 - paybackfeeds.
Chapter #8 Solutions to Questions and Problems 1. Payback ...
In the Study Guide for Paper FFM, reference E3 a requires candidates to not only be able to calculate the payback and discounted payback, but also to be able to discuss the usefulness of payback as a method of investment appraisal. Recent Paper FFM exam sittings have shown that candidates are not studying payback in sufficient depth or breadth to answer exam questions successfully. This article aims to help candidates with this. Candidates should note that payback is not only examined within the Paper FFM syllabus, but also the Paper F9 syllabus. From the definition, it can be seen that only cash flows should be included within the calculation — specifically, only relevant cash flows should be included within the calculation, so items such as depreciation should be excluded. Depreciation will be on a straight line basis over the life of the project.
Under payback method , an investment project is accepted or rejected on the basis of payback period. Payback period means the period of time that a project requires to recover the money invested in it. Unlike net present value and internal rate of return method , payback method does not take into account the time value of money. According to payback method, the project that promises a quick recovery of initial investment is considered desirable. For example, if a company wants to recoup the cost of a machine within 5 years of purchase, the maximum desired payback period of the company would be 5 years.
Payback period – Meaning, Usage & Illustrations
Discounted payback period is a variation of payback period which uses discounted cash flows while calculating the time an investment takes to pay back its initial cash outflow. One of the major disadvantages of simple payback period is that it ignores the time value of money. To counter this limitation, discounted payback period was devised, and it accounts for the time value of money by discounting the cash inflows of the project for each period at a suitable discount rate. In discounted payback period we have to calculate the present value of each cash inflow.
The payback period is the amount of time required for cash inflows generated by a project to offset its initial cash outflow. There are two ways to calculate the payback period, which are:. Averaging method.
Question: Although the net present value NPV and internal rate of return IRR methods are the most commonly used approaches to evaluating investments, some managers also use the payback method.
Ему было не привыкать работать допоздна даже по уикэндам; именно эти сравнительно спокойные часы в АНБ, как правило, были единственным временем, когда он мог заниматься обслуживанием компьютерной техники. Просунув раскаленный паяльник сквозь проволочный лабиринт у себя над головой, он действовал с величайшей осмотрительностью: опалить защитную оболочку провода значило вывести аппарат из строя. Еще несколько сантиметров, подумал Джабба. Работа заняла намного больше времени, чем он рассчитывал.
Он успел бы вскрикнуть от боли, если бы сильная рука не зажала ему рот. Старик не мог даже пошевелиться. Он почувствовал неимоверный жар, бегущий вверх по руке.