Calculate the payback period

Assignment Help Finance Basics
Reference no: EM13925029

Cedes limited has the following details of two of the future production plans. Only one of these machines will be purchased and the venture would be taken to be virtually exclusive. The Standard model costs £50,000 and the Deluxe cost £88,000 payable immediately. Both machines will require the input of the following:

i) Installation costs of £20,000 for Standard and £40,000 for the Deluxe

ii) A £10,000 working capital through their working lives.

Both machines have no expected scrap value at end of their expected working lives of 4 years for the Standard machine and six years for the Deluxe. The operating pre-tax net cash flows associated with the two machines are:

Year

1

2

3

4

5

6

Standard

Deluxe

28,500

36,030

25,860

30,110

24,210

28,380

23,410

25,940

-

38,500

-

35,100

The deluxe machine has only been introduced in the market and has not been fully tested in the operating conditions, because of the high risk involved the appropriate discount rate for the deluxe machine is believed to be 14% per annum, 2% higher than the rate of the standard machine. The company is proposing the purchase of either machine with a term loan at a fixed rate of interest of 11% per annum, taxation at 30% is payable on operating cash-flows one year in arrears and capital allowance are available at 25% per annum on a reducing balance basis.

Required

For both the Standard and the Deluxe machines, calculate the payback period.

Reference no: EM13925029

Questions Cloud

Material cost : All of these answers are correct.Number of machine setups Machine hours Material cost
Discuss the working capital requirements : Discuss the working capital requirements. Also explore the liquidity situation. What would be the working capital situation if the turnover doubles without change in the current terms of trade?
Identify any quantitative or qualitative forecasting factors : Explain how and why each source is valuable and useful.
Expected to affect the profits earned by chinese subsidiary : Sharma Co. is a U.K. firm with a Chinese subsidiary that produces cell phones in China and sells them in Japan. This subsidiary pays its wages and its rent in Chinese yuan, which is stable against the pound. Assume that the Japanese yen strengthens a..
Calculate the payback period : For both the Standard and the Deluxe machines, calculate the payback period.
Future contracts price for this change in interest rates : Julie wells has found a treasury bond futures contract whose underlying duration is 8.5 years and is currently selling for 97500. Interest rates are currently 8 percent and are expected to rise by 1.5 percent what is te expected change in the future ..
What is difference between operating cycle and cash cycle : What is the difference between operating cycle and cash cycle? How do the following changes in working capital terms affect the cash conversion cycle.
Draw the market demand curve for ice cream : Suppose Katie, Mark, and Bobby are the only consumers in the market for ice cream. Using the demand schedules in the table below, draw the market demand curve for ice cream.
In other words, for which liability are actual : Of the three liabilities described, which do you think poses the most risk for the company? In other words, for which liability are actual costs most likely to exceed the liability reported on the balance sheet? Uncertainty creates risk.

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd