Canada Golf Club (CGC) is considering three independent projects for July 2021 tournament. The three projects are project A, project B and project C. Given the following cash flow information, calculate the payback period for each. If CGC requires a 3-year payback before an investment can be made, which project(s) would be accepted? Project A ($) Project B ($) Project C ($) Year O (Investment) -2,000 -$10,000 -$5,000 1 -2,000 -6,000 -12,000 2 800 4,000 5,000 600 3,000 5,000 4 600 2,000 5,000 Answer 400 2,000 2,000 Payback Period Project A =

Canada Golf Club (CGC) is considering three independent projects for July 2021 tournament. The three projects are project A, project B and project C. Given the following cash flow information, calculate the payback period for each. If CGC requires a 3-year payback before an investment can be made, which project(s) would be accepted? Project A ($) Project B ($) Project C ($) Year O (Investment) -2,000 -$10,000 -$5,000 1 -2,000 -6,000 -12,000 2 800 4,000 5,000 600 3,000 5,000 4 600 2,000 5,000 Answer 400 2,000 2,000 Payback Period Project A =

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 8P

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Markoff Products is considering two competing projects, but only one will be selected. Project A requires an initial investment of $42,000 and is expected to generate future cash flows of $6,000 for each of the next 50 years. Project B requires an initial investment of $210,000 and will generate $30,000 for each of the next 10 years. If Markoff requires a payback of 8 years or less, which project should it select based on payback periods?
There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,000 and is expected to generate the following cash flows: If the discount rate is 12%, compute the NPV of each project.
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Clearcast Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated operating income, and net cash flow for each proposal are as follows: The companys capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals. Instructions 1. Compute the cash payback period for each of the four proposals. 2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to one decimal place. 3. Using the following format, summarize the results of your computations in parts (1) and (2). By placing the computed amounts in the first two columns on the left and by placing a check mark in the appropriate column to the right, indicate which proposals should be accepted for further analysis and which should be rejected. 4. For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 12% and the present value table appearing in Exhibit 2 of this chapter. 5. Compute the present value index for each of the proposals in part (4). Round to two decimal places. 6. Rank the proposals from most attractive to least attractive, based on the present values of net cash flows computed in part (4). 7. Rank the proposals from most attractive to least attractive, based on the present value indexes computed in part (5). 8. Based on the analyses, comment on the relative attractiveness of the proposals ranked in parts (6) and (7).
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