790 Words4 Pages

Payback Period is the time in which the initial cash outflow of an investment is expected to be recovered from the cash inflows generated by the investment. It is one of the simplest investment appraisal techniques. Formula The formula to calculate payback period of a project depends on whether the cash flow per period of the project is even or uneven. In case they are even, the formula to calculate payback period is: Payback Period = Initial Investment Cash Inflow per Period When cash inflows are uneven, we need to calculate the cumulative net cash flow for each period and then use the following formula for payback period: Payback Period = A + B C In the above formula, A is the last period with a negative cumulative cash flow; B is the absolute value of cumulative cash flow at the end of the period A; C is the total cash flow during the period after A Profitability Index is an investment appraisal technique calculated by dividing the present value of future cash flows of a project by the initial investment required for the project. Formula: Profitability Index = Present Value of Future Cash Flows Initial Investment Required = 1 + Net Present Value Initial Investment Required Explanation: Profitability index is actually a modification of the net present value method. While present value is an absolute measure (i.e. it gives as the total dollar figure for a project), the profitability index is a relative measure (i.e. it gives as the figure as a ratio). Decision Rule Accept a

Related

## Tasty Foods

2696 Words | 11 Pages417). In other words, these are the cash flows that will only occur if we do accept the project. Answer: When determining the incremental cash flows related to the project, we should not include interest expense, even if the project will be partly financed by debt. We will take the interest cost into consideration when we perform the net present value analysis on these cash flows. At that point, the required rate of return we will use will be a rate that

## Case Study on Mini Hydro Power Plant & a Tea Factory

2084 Words | 9 Pages> Payback Period | | | Payback Period Payback period is the time in which the initial cash outflow of an investment is expected to be recovered from the cash inflows generated by the investment. It is one of the simplest investment appraisal techniques. Formula The formula to calculate payback period of a project depends on whether the cash flow per period from the project is even or uneven. In case they are even, the formula to calculate payback period is: Payback Period = | Initial

## Hadm 2250 Prelim Review Questions

4258 Words | 18 Pagescom/shop/hadm-2250-prelim-review-questions/ 1. What is the payback period for the set of cash flows given below? Year Cash Flow 0 –$5,500 1 1,300 2 1,500 3 1,900 4 1,400 2. An investment project provides cash inflows of $585 per year for eight years. (a) What is the project payback period if the initial cost is $1,700? (b) What is the project payback period if the initial cost is $3,300? (c) What is the project payback period if the initial cost is $4,900? 3. Buy Coastal, Inc., imposes

## Caledonia Products Integrative Problem

1309 Words | 6 Pagescalculating the cash flows associated with the production of a new fad product which is expected to last for a five year period, provide a recommendation and respond to a number of questions on the capital-budgeting process. They must also factor in whether it should lease versus buying the equipment. Cash Flows versus Accounting Profits Caledonia should focus on free cash flows opposed to the accounting profits earned by the project when analyzing whether to undertake the project because focusing

## Lockheed Case

729 Words | 3 Pages1. a) Payback Period= Investment/Cash Flow per Year = 35,000/5000 = 7 year Computation of NPV: NPV= C0 + PV [PV= C0 + Σi=1t Ct/(1+r)t] =C0 +C[1/r – 1/r(1+r)t] = -35,000+ 5000[1/.12 - 1/.12(1+.12)15] = -35,000 + 5000[1/.12 – 1/.657] = -35,000 + (5000 * 6.81) = -945.68 i.e. $ -945.68 Computation of IRR: 0= -35,000 + Σ t i=1 5000/(1+IRR)t = 11.49% Rainbow Products should not purchase the machine because it is not profitable whether you utilize the NPV method or the

## CB-ACCTG

4624 Words | 19 PagesLesson Plan on Capital Budgeting Capital Budgeting - process of deciding whether or not to commit resources to projects whose costs and benefits are spread over several time periods. Characteristics of a Capital Investment Decision: 1. Substantial amount of funds are required in capital projects. 2. Because of the length of time span by a capital investment decision, the element of uncertainty becomes more critical. 3. The effect of managerial errors will be difficult to reverse

## Palms Hospital Analysis Essay

2133 Words | 9 Pagesexpansion project that would utilize land previously purchased. By expanding into ambulatory surgical services, the hospital has the opportunity to increase revenues and capture market share in this area. Investigation in the NPV of the project and a scenario analysis reveal that the project would be profitable. Debt Financing This project will most likely involve debt financing. This means that interest expense would occur and should be taken into account in the analysis of the project. Interest

## Finc600 Week 2 Practice Quiz

737 Words | 3 PagesII only C. III only D. None of the above Question 15 of 15 For example, in the case of an electric car project, which of the following cash flows should be treated as incremental flows when deciding whether to go ahead with the project? A.The cost of research and development undertaken for developing the electric car in the past three years B.The annual depreciation charge Correct C.Tax savings resulting

## Financial Forecasting and Project Analysis

14473 Words | 58 Pageslump sum cash flow to be received in n years; the present value is computed as follows: PV = C(1+r)-n t=0 n =(years) _______________________ ( C PV = C(1+r)-n Remark: The higher the interest rate, the lower the present value. Example: Suppose the interest rate is 8% compounded annually. This implies that the multiplicative growth factor per year is 1.08. a. A payment of $300 will occur today. Compute the future value of this cash flow

## The Total Contribution Cost Ratio

1457 Words | 6 Pagesby the contribution per unit. To calculate the contribution per unit you do the selling price minus the variable costs. Racquets - £225 Producing - 6000 units Labour - 27000 hours Materials - £44 X 6000 = £264,000 Labour - £12 X (4.5 hours x 6000) = £324,000 Variable overheads production – 10 x 4.5 = 45 x 6000 = £270,000 Total Expenses - £858,000 + 161,000 + 126,000 = 1,145,000 BEP – £225 x 6000 = 1,350,000 £1,350,000 – £858,000 = 492,000 divides by 6000 = 82 contribution per unit £161,000 + £126

### Tasty Foods

2696 Words | 11 Pages### Case Study on Mini Hydro Power Plant & a Tea Factory

2084 Words | 9 Pages### Hadm 2250 Prelim Review Questions

4258 Words | 18 Pages### Caledonia Products Integrative Problem

1309 Words | 6 Pages### Lockheed Case

729 Words | 3 Pages### CB-ACCTG

4624 Words | 19 Pages### Palms Hospital Analysis Essay

2133 Words | 9 Pages### Finc600 Week 2 Practice Quiz

737 Words | 3 Pages### Financial Forecasting and Project Analysis

14473 Words | 58 Pages### The Total Contribution Cost Ratio

1457 Words | 6 Pages

- Graduation Speech - Original Writing
- Religion And Its Effect On Religion
- Functionalism Of A Right Hand World
- The Effect Of Strokes On A Cellular, Organ And System Level
- Shakespeare 's Othello - Shakespearean Motives From Iago 's Perspective
- A Social Worker Is A Tremendous Responsibility And Career Rewarding Choice