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
Management of Sole Proprietorship  In sole proprietorship the owner is usually in charge of day to day running of the business. If the business is large he may give some duties

Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 25% f

Creditors Trade - Measuring Business Performance Creditors Trade These are interested in the company's capability to meet their short-term obligations as and whenever the

Miller-Orr Model Unlike the Baumol's Model, Miller-Orr Model is a stochastic or like probabilistic model that creates the more realistic assumption of doubt in cash flows.

Draw the network diagram of the following project according to the activity list and relationships mentioned below Table 1 Activity Du

After carefully reading all the available information, prepare a two page (double-spaced) essay and answer the following questions: Assume that we have the following data: C=100+0.

Zoeckler Mowing & Landscaping''s year-end 2012 balance sheet lists current assets of $436,500, fixed assets of $551,500, current liabilities of $417,900, and long-term debt of $317

2 Questions QUESTION #1 LAPTOP SELECTION Jonna is in market to buy a new laptop. Six different machines are under consideration. All laptops are essentially the same, but they v

Money or Discount Markets - Financial Markets 1. Are discount and acceptance financial institutions 2. This is a market for S.T funds growing up in one year. Money market w

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