Determine the approximate payback period, Finance Basics

The business plan for a new company that has obtained a 5 year lease for operating a local bus service is shown below.  Items marked with an asterisk represent continuous cash flows, however it can be assumed that they are made monthly in arrears.

Cashflow Item

Timing

Amount (thousands)

 

 

 

Initial set up costs

Immediate

-150

Fees from advertising contracts

1 month

+200

Purchase of vehicles

3 months

-2,000

Fares from passengers*

From 3 months onwards

+1,200 pa

Staff costs and other operating costs*

From 3 months onwards

-480 pa

Resale value of assets

5 years

+575

You may assume that the project is financed by a loan facility based on an effective annual interest rate of 9% per annum, and interest (and any repayments of capital) is due and paid annually in arrears.

The company has a choice of paying only the interest on the loan or can repay some the loan with the interest payments. Please give a reason for your choice of interest only or with loan repayments.

Any surplus funds that the company has each year, in excess of the interest due on the loan can be invested and earns interest at the rate of 5% per annum payable half yearly.

(a) Set up a spreadsheet using Excel showing all cash flows for the term of the lease. You may want to show cash flow from the business and interest (and loan repayments separately.

(b) What is the approximate payback period?

 

Posted Date: 2/23/2013 7:37:33 AM | Location : United States







Related Discussions:- Determine the approximate payback period, Assignment Help, Ask Question on Determine the approximate payback period, Get Answer, Expert's Help, Determine the approximate payback period Discussions

Write discussion on Determine the approximate payback period
Your posts are moderated
Related Questions
Your daughter is a beginning freshman in high school. By the time she enters her freshman year in college, you would like to have savings accumulated to pay her tuition for her nex

Social responsibility - Objectives of Business Entity The firm must decide where to operate strictly in their shareholders' best interests or be responsible to their staff, th

At the end of the fiscal year ending June 30, 2003, Microsoft reported common equity of $64.9 billion on its balance sheet, with $49.0 billion invested in financial assets (in the

Reasons for why Ordinary Share Capital is Attractive Reasons for why ordinary share capital is attractive despite to be risky Shares are used as securities for loans as

The partners are still unhappy about one of the features of your analysis, namely your assumption that the coupon rate of the bond is equal to 6% per annum. Their thinking is that

Partnerships - Types of Business Organisations Defination "The relationship, that exists with persons carrying on a business in common by a view of profit." Formati

what are the sources of business finance?

You need cash and FAST! You jump out of your car at a location known to have one ATM, but a history of a line. Usually you can expect to wait 200 seconds from the time you arrive

Financial Planning Project Instructions: You will serve as a financial advisor for your client to develop a financial plan. You can compile all the worksheets introduced in eac

Acceptance Rule of Accounting Rate of Return or ARR ARR procedure will accept those projects whose ARR is higher rather than that set with management or with bank rate and it