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 a marginal cost of capital schedule (MCC)?  Is the schedule always a horizontal line?  Explain. The marginal cost of capital schedule is a graphic representation of the

Types of FRNs In an era of innovations, while changing needs and preferences of the investors trigger introduction of newer FRNs, the borrowers' funding specifications also nec

You are an investment banker advising a Eurobank with reference to a new international bond offering it is considering.  The carries on are to be employed to fund Eurodollar loans

Explain why accounting profits and cash flows are not the same thing. Stock worth depends on future cash flows, their riskiness and their timing.  Profit calculations don't con

Ashok is to receive an amount of Rs. 15,00,000 from his relative after 3 years. He wants to buy a house for which he wants the money to be paid now. His relative had al

The Central Bank is an authority responsible for monetary policy of its country. It regulates money supply and credit, issues currency, and manages exchange rate.

Question 1 What is over capitalization? How do we know over capitalization has occurred? Question 2 Explain permanent and temporary working capital Question 3 A. What ar

Along the dimension of security, bonds can be classified into unsecured (straight) bonds and secured (mortgage) bonds. Unsecured bonds have no charge on any speci

Question: (a) The future value (F) of a sum invested now can be calculated using the formula: F = P(1 + r) n Required: (i) Describe each of the other constituents in the

Hi I have been working in this for 2 weeks now and I just can''t seem to figure it out. ok lets say Bill is 40 yrs old. His made 72,000 last year had 60,000. in annual expenses,