Masego Pty Ltd considers buying a Truck as the business expands. They are considering between buying Truck Y or Truck Z. They will be spending P140 000 on Truck Y and P160 000 on Truck Z. The discounting factor for the above trucks is 16%. The cash inflows and outflows are shown below: Truck Y Truck Z Net cash flow Net cash flow Year 0 (140000) (160000) 1 50000 85000 2 60000 90000 3 50000 75000 4 40000 65000 a) Calculate the payback period for each truck. Explain which truck the business should buy and why. b) Calculate the discounted payback for each truck. c) Determine the Net Present Value for each truck. d) Calculate the profitability index for each truck. e) Describe five advantages of the NPV method of capital budgeting

Masego Pty Ltd considers buying a Truck as the business expands. They are considering between buying Truck Y or Truck Z. They will be spending P140 000 on Truck Y and P160 000 on Truck Z. The discounting factor for the above trucks is 16%. The cash inflows and outflows are shown below: Truck Y Truck Z Net cash flow Net cash flow Year 0 (140000) (160000) 1 50000 85000 2 60000 90000 3 50000 75000 4 40000 65000 a) Calculate the payback period for each truck. Explain which truck the business should buy and why. b) Calculate the discounted payback for each truck. c) Determine the Net Present Value for each truck. d) Calculate the profitability index for each truck. e) Describe five advantages of the NPV method of capital budgeting

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 16EA: Project B cost $5,000 and will generate after-tax net cash inflows of $500 in year one, $1,200 in...

See similar textbooks

Similar questions

A bookstore is planning to purchase an automated inventory/remote marketing system, which includes an upgrade to a more sophisticated cash register system. The package has an initial investment cost of $360,000. It is expected to generate $144,000 of annual cash flows, reduce costs and provide incremental cash revenues of $326,000, and incur incremental cash expenses of $200,000 annually. What is the payback period and accounting rate of return (ARR)?
Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required: 1. Patz Corporation is considering the purchase of a computer-aided manufacturing system. The cash benefits will be 800,000 per year. The system costs 4,000,000 and will last eight years. Compute the NPV assuming a discount rate of 10 percent. Should the company buy the new system? 2. Sterling Wetzel has just invested 270,000 in a restaurant specializing in German food. He expects to receive 43,470 per year for the next eight years. His cost of capital is 5.5 percent. Compute the internal rate of return. Did Sterling make a good decision?
Project Y cost $8,000 and will generate net cash inflows of $1,500 in year one, $2,000 in year two, $2,500 in year three, $3,000 in year four and $2,000 in year five. What is the NPV using 8% as the discount rate?
Project B cost $5,000 and will generate after-tax net cash inflows of $500 in year one, $1,200 in year two, $2,000 in year three. $2,500 in year four, and $2,000 in year five. What is the NPV using 8% as the discount rate? For further instructions on net present value in Excel, see Appendix C.
Masego Pty Ltd considers buying a Truck as the business expands. They are considering betweenbuying Truck Y or Truck Z. They will be spending P140 000 on Truck Y and P160 000 on TruckZ. The discounting factor for the above trucks is 16%. The cash inflows and outflows are shownbelow:Truck Y Truck ZNet cash flow Net cash flowYear 0 (140 000) (160 000)1 50 000 85 0002 60 000 90 0003 50 000 75 0004 40 000 65 000a) Calculate the payback period for each truck. Explain which truck the business should buy andwhy. b) Calculate the discounted payback for each truck. c) Determine the Net Present Value for each truck. d) Calculate the profitability index for each truck. e) Describe five advantages of the NPV method of capital budgeting.
Darrington Inc. is evaluating an equipment purchase which requires an expenditure of $393 today followed by an inflow of $150 in year one, $200 in year two, and $253 in year three. What is the net present value of these cash flows to the nearest cent if the discount rate is 8%?
XYZ Company is deciding whether or not they will push through with Project A, considering that they will need to pay $500,000 to initiate the project and that the expected annual cash flows, with 5% discount rate, are as follows: Year Cash Inflows 1 300,00 2 350,00 3 400,00 Should XYZ Company initiate Project A?
A company is planning to expand its business is costing OMR 21601. The following cash inflows are expected. Calculate Profitability index given the rate of discounting to be 3.008% Years Machine A 1 14564 2 13300 3 12500 4 14500 Select one: a. none of the options b. 0.424 c. 2.380 d. 29387.948 e. 2.360 Clear my choice
A company is planning to expand its business is costing OMR 24271. The following cash inflows are expected. Calculate Profitability index given the rate of discounting to be 3.008% Years Machine A 1 11055 2 13300 3 12500 4 14500 Select one: a. none of the options b. 0.510 c. 23311.416 d. 1.960 e. 1.974
A company has just sold a product with the following payment plan: $75, 000 today, $50, 000 at the end of year 1. and $25, 000 at the end of year two. If the payments are deposited into an account earning 4.5% per year, calculate the present value for the cash flow. Show steps using ONLY a financial calculator. The answer should be 145,740.
Beyer Company is considering buying an asset for $350,000. It is expected to produce the following net cash flows. Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your Payback Period answer to 2 decimal places.)
A company is planning to expand its business is costing OMR 18189. The following cash inflows are expected. Calculate Profitability index given the rate of discounting to be 3.008% Years Machine A 1 13456 2 13300 3 12500 4 14500 Select one: a. 2.744 b. 2.766 c. none of the options d. 31724.303 e. 0.364