Explain payback period of CHROMEX PLC, Financial Management

CHROMEX PLC

Payback period

Payback period must be based on cash flows that is the cash generated from operations and the capital invested by Chromex. Profit is different from cash flow to the extent that depreciation has been charged in the accounts. The sum inward from the sale of assets merely reduces the size of the capital investment.

This gives the following statistics for the payback calculation assuming that no further reinvestment in plant is required

Investment Cost = $150 million - $10 million = $140 million

If the labour cost savings are mistreated Annual Cash flows from Bexell's operations post take over = $10 million + $0.5 million = $10.5 million Payback period (in years) = 140/10.5 = 13.33 years or 13 years 4 months This is a conservative approximation in that it ignores the possible cash flow effects of the anticipated operating savings from reduced labour costs. If the savings are supposed to have a cash flow value of $700000 this gives an adjusted figure for cash flow as follows

Annual cash flow = $ 10.5 million + $0.7 million = $11.2 million

Payback period is thus equal to

140/112= 12.5 years or 12 years and 6 months

The insertion of the labour cost savings so reduces the payback period by 10 months.

 

Posted Date: 7/9/2013 3:28:52 AM | Location : United States







Related Discussions:- Explain payback period of CHROMEX PLC, Assignment Help, Ask Question on Explain payback period of CHROMEX PLC, Get Answer, Expert's Help, Explain payback period of CHROMEX PLC Discussions

Write discussion on Explain payback period of CHROMEX PLC
Your posts are moderated
Related Questions
What is Dividend Decision Determination of funds requirements and how much of itwould be generated from internal accruals and how much to be sourced from outsideis a crucial

The following is the existing capital structure of Company XYZ Ltd. Ordinary shares at Shs.10 par 1,000,000 Retained 800,000 12% preference shares Shs.10 par 400,000 16% loan Shs.1

In two of the four months of the cash budget Thorne Co has a cash shortage with the highest cash deficit being the opening balance of $40000. This cash shortage which has occurred

What is the major difference in the obligation of one with a long position in a futures (or forward) contract in comparison to an options contract? Answer: A futures or forward c

BAGS, Inc. is considering an investment in a new project. The required investment is $1,000,000. After-tax net cash flows are expected to be $50,000 the first year and are expected

what are the basic assumptions of financial management?

The assets and liabilities of S Harrison as at 30 June 2012 are: On 1 July 2011 when the business commenced, Harrison owed $58,000 on the land and buildings and $1,200 on

Q. What do you signify by Cash? Cash :- For the motive of cash management the term cash not only includes cheques, bank drafts, coins, currency, notes, demand deposits with ban

How are financing costs generally incorporated into the capital budgeting analysis process? Financing costs are generally captured in the discount or hurdle rate while doing NPV

Borrowing Funds to Purchase Bonds There are several sources available to borrow funds. When securities are purchased with borrowed funds then the mo