Statements about the payback method

Assignment Help Financial Management

Reference no: EM131925179

1. Kelly's Corner Bakery purchased a lot in Columbus City five years ago at a cost of $740,000. Today, that lot has a market value of $880,000. At the time of the purchase, the company spent $55,000 to level the lot and another $5,800 to install storm drains. The company now wants to build a new facility on that site. The building cost is estimated at $1,240,000. The amount should be used as the initial cash outflow for this project is $____. Put a positive dollar amount, and round it to a whole dollar, e.g., 123456.

2. Which one of the following statements about the payback method is not true?

A. The payback method is simple and easy to understand

B. One of its strengths is that it considers entire cash flows.

C. The payback method represents the number of years it takes a project to recover its initial investment.

D. There is no economic rational that links the payback method to shareholder wealth maximization.

Reference no: EM131925179

Questions Cloud

Calculate the operating and cash cycles : Calculate the operating and cash cycles.

About traders expectations of future interest rates : Suppose the 180-day bill rate is higher than the 90-day rate. What does that imply about traders’ expectations of future interest rates?

Positive relationship between risk and return : The capital Asset Pricing Model/SML dictates a positive relationship between risk and return.

Assume debt proceeds are used to repurchase equity : Assume debt proceeds are used to repurchase equity. Ignoring taxes, what will the company’s value be if it sells $33 million in debt?

Statements about the payback method : Which one of the following statements about the payback method is not true?

What is the profit if the terminal stock price : What is the profit if the terminal stock price is $30? the terminal stock price is $45? the terminal stock price is $55?

Individuals performing ratio analysis : Individuals performing ratio analysis include banks evaluating potential loan applications from small businesses,

How large will his down payment be three years from? today : He will use this money as a down payment on a new home at the end of the 3 years. How large will his down payment be 3 years from? today?

When discussing the limitations of WACC : When discussing the limitations of WACC. Describe the implication of such a calculation when a firm is considering adding to its capital structure.

User Account

All Pages