Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows. Colby Hepworth has just invested $400,000 in a book and video store. She expects to receive a cash income of $120,000 per year from the investment. Kylie Sorensen has just invested $1,400,000 in a new biomedical technology. She expects to receive the following cash flows over the next 5 years: $350,000, $490,000, $700,000, $420,000, and $280,000. Carsen Nabors invested in a project that has a payback period of 4 years. The project brings in $960,000 per year. Rahn Booth invested $1,300,000 in a project that pays him an even amount per year for 5 years. The payback period is 2.5 years. Required: 1.  What is the payback period for Colby? Round your answer to two decimal places. fill in the blank 1 years 2.  What is the payback period for Kylie? Round your answer to one decimal place. fill in the blank 2 years 3.  How much did Carsen invest in the project? $fill in the blank 3 4.  How much cash does Rahn receive each year? $fill in the blank 4 per year

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 7E
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Payback Period

Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows.

  1. Colby Hepworth has just invested $400,000 in a book and video store. She expects to receive a cash income of $120,000 per year from the investment.
  2. Kylie Sorensen has just invested $1,400,000 in a new biomedical technology. She expects to receive the following cash flows over the next 5 years: $350,000, $490,000, $700,000, $420,000, and $280,000.
  3. Carsen Nabors invested in a project that has a payback period of 4 years. The project brings in $960,000 per year.
  4. Rahn Booth invested $1,300,000 in a project that pays him an even amount per year for 5 years. The payback period is 2.5 years.

Required:

1.  What is the payback period for Colby? Round your answer to two decimal places.
fill in the blank 1 years

2.  What is the payback period for Kylie? Round your answer to one decimal place.
fill in the blank 2 years

3.  How much did Carsen invest in the project?
$fill in the blank 3

4.  How much cash does Rahn receive each year?
$fill in the blank 4 per year

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