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
a) Variable costs: Remuneration of flight attendants, Meals and drinks onboard, Fuel. Fixed costs: promotions and Advertising, Remuneration of administrative staff and Airport c


the procedures, techniques or strategies that could or should be implemented to reduce the likelihood of harm > actions that could be taken to eliminate the hazard or reduce the r

What is Institutional Finance A nation's economic structure comprise a number offinancial institutions, like banks, pension funds, insurance companies, creditunions. These i

Company X is expected to maintain a constant 7% growth rate in their dividends, indefinitely. If company X has a dividend yield of 4%, what is the required return on their shares?

What is the relationship between a bond's market price and its promised yield to maturity?  Explain. A bond's market price reckon on its yield to maturity (YTM).  When a bond h

Settlement of the Index Options Contract In the index options contract, the premium to be paid or to be received is calculated for each CM after netting the positions at the en

The Rise of Derivative Market: In the 1980s, the process of liberalization and deregulation of the financial markets gained momentum when the British and American leadership l

I need a report on the topic Inventory Turnover Ratio. Can you please assist me for Inventory Turnover Ratio report for about 2500 words?

Chu Chu Train Systems is expected to pay a $3.25 annual dividend (D1 = $3.25), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently s