Utilizes the payback method to evaluate investment proposal

Assignment Help Finance Basics
Reference no: EM13244751

Recycle Paper Company utilizes the payback method to evaluate investment proposals. It is presently considering two investment opportunities: 
Investment A 
Net Investment = $1,000,000 
Year Expected Cash Inflows 
1 $25,000 
2 $25,000 
3 $25,000 
4 $25,000 
5 $25,000
6 $10,000
7 $5,000

Investment B 
Net Investment = $500,000 

Year Expected Cash Inflows 
1 $125,000 
2 $250,000 
3 $300,000 
4 $225,000 
5 $100,000 
6 $25,0000
7 $0

(a) Compute the payback period for Investments.
(b) If the firm utilized a payback cutoff standard of three years which, if either, of the investments would be acceptable? Why?

As a recent employee of Recycle Paper Co (above), you recognize the deficiencies of the payback method. After deriving the firm's required rate of return (cost of capital), you desire to illustrate alternative approaches to your boss.

(c) Assuming a cost of capital of 14%, calculate the NPV of investment proposals A and B.
(d) Should recycle accept either of the investment proposals? Why?

Reference no: EM13244751

Questions Cloud

What is the cars speed at the top : The normal force equals the magnitude of the gravitational force as a roller coaster car crosses the top of a 59-m-diameter, What is the car's speed at the top
Calculate the dead weight loss from monopoly : (a) Find the price and quantity that maximizes the company's profit. (b) Find the price and quantity that would maximize socialwelfare/total surplus. (c) Calculate the dead weight loss from monopoly.
Explain the molar concentration of acetic acid : A student wanted to determine the molar concentration of acetic acid in a commercial vinegar sample. He used a volumetric pipet to deliver 3.00 mL of vinegar to an Erlenmeyer flask, added about 30 mL of water and 3 drops of phenolphthalein indicat..
How many turns must the solenoid have : A 42-cm-long solenoid, 1.8?cm in diameter, is to produce a 0.030-T magnetic field at its center. If the maximum current is 4.6 A
Utilizes the payback method to evaluate investment proposal : Recycle Paper Company utilizes the payback method to evaluate investment proposals. It is presently considering two investment opportunities
State the mass expression and use the assumption : If 3.55 g of CuSO4 are dissolved in 925 mL of 0.30 M NH3, what are the concentrations of Cu2+, Cu(NH3)42+, and NH3 at equilibrium Kf, Cu(NH3)42+= 1.1 x 1013 . Assume that most of the Cu2+ is converted to the complex since K is a very large number...
Find the price of legos or the price of crayons : d Iris have Legos andcrayons. Zaley has 5 Legos and 5 crayons, Iris has 2 Legos and 8 crayons. Zaley's utility function for Legos andcrayons is uz(lz, cz) = lz · cz where lz and cz represent quantities of Legos and crayons.Iris' utility function is
How many bright fringes appear along the total length : Light of wavelength 665 nm is used to illuminate normally two glass plates 12 cm in length, How many bright fringes appear along the total length of the plates
Geography influence the creation of the ancient mesopotamian : How did geography influence the creation of the ancient Mesopotamian, Egyptian, and Athenian cultures? What was most important about the cultures that emered wihin these regions?

Reviews

Write a Review

Finance Basics Questions & Answers

  Determining the correlation among two or more variables

1.What is correlation and when would a researcher be interested in determining the correlation among two or more variables?

  Option contracts to minimize risk

Benefit from using option contracts to minimize risk.

  Compute the holding period return

In an effort to track the local economy Finance 327 has decided to create a San Diego stock market index. The index will be made up of four local stocks Sempra Energy.

  Calculate value of duration

Compute the value of duration for a 4-year, $1,000 par value U.S. Government bond purchased today at a yield to maturity of 15%. The bond coupon rate is 12 percent and it pays interest once a year at year end.

  Discuss the various uses for break-even analysis

Determine what factors would cause a difference in the use of financial leverage for a utility corporationand an automobile company?

  Determine financial markets

Determine financial markets and what function do they perform? How would an economy beworse off without them?

  Find the sheepskin''s 2006 net income

Accounting accrual concept and revenue recognition - Multiple Choice and What is Sheepskin's 2006 net income using cash basis accounting?

  The demand for milk is more elastic than demand for water

The demand for milk is more elastic than the demand for water. Assume the government levies an equivalent tax on milk also water.

  Find the market return for an asset

Find the market return for an asset with a required return of 16% and a beta of 1.10 when the risk-free rate is 9% and find the beta for an asset with a required return of 15 percent.

  Calculation of price of preferred stock with given data''s

Calculation of price of preferred stock with given data's and Compute the price of the preferred stock

  Fixed income

Assume all rates are annuaFixed lized with semi-annual compounding,  What is the 1-year par rate, i.e., what coupon rate would make the price of a 1-year coupon bond equal to par?

  Costs-bond issues

Compute the cost of repricing the bond issue. Give the expected additional cost associated with recommendation of pricing the issue to yield the more competitive return.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd