BioInov could lunch two new products onto the market. The expected cash flows and investments are represented in the table below. Assume that the required return in either investment is 6%. Year Nano Tests Micro Kits Initial Investment -$11,000 $4,000 $4,000 -$11,000 Year 1 $2,000 $3,000 Year 2 Year 3 $4,000 $4,000 $4,000 $5,000 $6,000 Year 4 Year 5 $4,000 1. Compute the payback period for each project. If the company requires at most three years to recover the initial investment, should we accept either or both projects? 2. Compute the discounted payback period for each project. If the company requires at most three years to recover the initial investment, should we accept either or both projects? 3. Compute the NPY for each project. Should we accept either or both projects?
BioInov could lunch two new products onto the market. The expected cash flows and investments are represented in the table below. Assume that the required return in either investment is 6%. Year Nano Tests Micro Kits Initial Investment -$11,000 $4,000 $4,000 -$11,000 Year 1 $2,000 $3,000 Year 2 Year 3 $4,000 $4,000 $4,000 $5,000 $6,000 Year 4 Year 5 $4,000 1. Compute the payback period for each project. If the company requires at most three years to recover the initial investment, should we accept either or both projects? 2. Compute the discounted payback period for each project. If the company requires at most three years to recover the initial investment, should we accept either or both projects? 3. Compute the NPY for each project. Should we accept either or both projects?
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 13E: Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a...
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Capital budgeting is an accounting process that helps to evaluate the profitability and liquidity positions for long-term capital investments. It used many methods like payback period, discounted payback period, and net present value.
- Payback period represents the number of years a project or investment will take to recover its initial cash investment through future cash flows.
- Discounted payback period represents the number of years a project or investment will take to recover its initial cash outlay through its present value of future cash flows.
- Net present value represents absolute dollar value expected to be generated by a project or investment over its initial cash investment.
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