Answered: Find 1. Payback 2. Discounted payback.…

Find 1. Payback 2. Discounted payback. Compare the two methods. WACC: 9.00% Year 0 1 2 3 4 5 6 Cash flows −$1,200 350.00 480.00 (10.00) 830.00 (20.00) 1,200.00

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter7: Valuation Of Stocks And Corporations

Section: Chapter Questions

Problem 23SP

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Find

1. Payback

2. Discounted payback. Compare the two methods.

WACC:	9.00%
Year	0	1	2	3	4	5	6
Cash flows	−$1,200	350.00	480.00	(10.00)	830.00	(20.00)	1,200.00

Expert Solution

Step 1

year	cash flows
0	-1200
1	350
2	480
3	-10
4	830
5	-20
6	1200
WACC	9%

Step 2

FORMULA:

Step 3

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