Payback method to analyse business , Business Economics

The managing director of Christine plc, a company which specialises in acquiring small businesses, has considered the following potential investments. Only one of these investments can be undertaken as a result of a shortage of investment funds at Christie plc.

Potential investment

                                                       Business A                            Business B

Estimated life                                  5 years                                  3 years

                                                            £                                             £

Initial Cash Outflow                    (1,000,000)                               (800,000)

Net Cash Inflows, end

Year 1                                             200,000                                    300,000

Year 2                                             200,000                                    300,000

Year 3                                             200,000                                    400,000

Year 4                                             300,000                                   

Year 5                                             300,000

Year 6                                             400,000

Disposal receipts from each of these businesses have been included in the final year cash inflows in both cases.

The cost of capital for Christie plc has been estimated at 12%.


a) Use the Net Present Value method  to analyse the potential investments in Business A and Business B and make justifiable decisions.

b) Use the payback method to analyse Business A and Business B and justify your decisions.

c) How would your decisions change on Business A and Business B if the net cash inflows for Business A were £200,000 throughout the six year period and also the net cash inflows for Business B were £300,000 throughout the three year period

Posted Date: 2/22/2013 7:38:51 AM | Location : United States

Related Discussions:- Payback method to analyse business , Assignment Help, Ask Question on Payback method to analyse business , Get Answer, Expert's Help, Payback method to analyse business Discussions

Write discussion on Payback method to analyse business
Your posts are moderated
Related Questions
Procedure for export under deferred paymet

What are Rostowís assumptions? Assumptions of Rostowís: • Economic development procedure is universal which is all countries whether within Africa or Asia go by the same se

Examine the factors that determine the price of computers in a free market. In recent years, the price of personal computers has continued to fall even in the face of increasing de

Why are the terms of trade deteriorating for Less Developed Countries? Problem: The substantial decline within real commodity prices and the deterioration into the terms of

Part 1 : Show the P/E ratio for each company. Answer the question: Which of these two firms seems to be more of a "growth stock"? Explain the reasons for your choice. Part 2:

A critically important criterion that must be considered in evaluating environmental policies is whether they provide strong incentives for people to find new ways to improve ambie

Explain why Caerphilly are considering this model of service provision Examine the costs and benefits of joining the shared service model. Your answer should cons

As selling is an ‘asking process’, how you could use this to assist you sell some further functionality to a system under development? When we use the buying cycle like a guide

Write a book review of a book of your choice (chosen from the list of course reference literature) by either Joseph A. Schumpeter or Israel Kirzner about entrepreneurship and macro

How does resource enhancement improve development? Enhancements in the quantity and quality of resources increases productivity hence incomes. Enhanced management raises outpu