Payback Period

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Cindy Justus is the managing director of the Wichita Day Care Center. Wichita is currently set up as a full-tin child care facility for children between the ages of 12 months and 6 years. Cindy is...
The Wyckoff Company specializes in decorative fruit baskets. Currently, the company is analyzing purchase alternatives for a fruit-polishing machine. Data relevant to the decision are as follows:...
Suppose that a thirty-year U.S. Treasury bond offers a 4% coupon rate, paid semiannually. The market price of the bond is 1,000 equal to its par value. a. What is the payback period for this bond?...
Nick's Novelties, Inc., is considering the purchase of new electronic games to place in its amusement houses The games would cost a total of $432,000, have a fifteen-year useful life, and have a to...
BSU Inc. wants to purchase a new machine for $41,100, excluding $1,000 of installation costs. The old machine was bought five years ago and had an expected economic life of 10 years without salvage...
A project will cost $10,000 upfront and $1,000 each year thereafter. The project will bring in $1,000 the first year, then $5,000 each year after. What is the breakeven point (payback period) for...
The management of Helberg Corporation is considering a project that would require an investment of $191,000 and would last for 6 years. The annual net operating income from the project would be $10...
Austen Ren owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternatives. One involves purchasing a machine that would enable Mr. Ren...
A project has an initial cost of $155,000. The estimated net cash flows of the project are as follows: (The discount rate is 8%). What is the project's Payback Period?
Christopher Electronics bought new machinery for $5,045,000 million. This is expected to result in additional cash flows of $1,200,000 million over the next 7 years. What is the payback period for...
Beyer Company is considering the purchase of an asset for $380,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year.
Christopher Electronics bought new machinery for $5,030,000 million. This is expected to result in additional cash flows of $1,230,000 million over the next 7 years. What is the payback period for...
Which of the following statements about capital investment analysis is most correct? 1. Although a useful accounting concept, breakeven analysis has no role in capital investment analysis. 2. Net p...
BSU Inc. wants to purchase a new machine for $29,300, excluding $1,500 of installation costs. The old machine was bought five years ago and had an expected economic life of 10 years without salvage...
The payback period may be more appropriate to use for companies experiencing capital rationing. True False
A significant disadvantage of the payback period is that it: A. is complicated to explain. B. increases firm risk. C. does not properly consider the time value of money. D. provides a measure of li...
A significant advantage of the payback period is that it: A. places emphasis on time value of money. B. allows for the proper ranking of projects. C. tends to reduce firm risk because it favors pro...
All of the following are criticisms of the payback period criterion except: A. time value of money is not accounted for. B. cash flows occurring after the payback are ignored. C. it deals with acco...
The advantages of NPV are all of the following except: A. it can be used as a rough screening device to eliminate those projects whose returns do not materialize until later years. B. it provides t...
What is the payback period for a project with an initial investment of $220,000 that provides an annual cash inflow of $20,000 for the first three years and $60,000 per year for years four and five...
What is the payback period for a project with an initial investment of $190,000 that provides an annual cash inflow of $30,000 for the first three years and $40,000 per year for years four and five...
PRY Treehouse Co. is considering a new inventory system that will cost $500,000. The system is expected to generate positive cash flows over the next five years in the amounts of $60,000 in year on...
FED Construction Co. is considering a new inventory system that will cost $975,000. The system is expected to generate positive cash flows over the next four years in the amounts of $100,000 in yea...
FED Construction Co. is considering a new inventory system that will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in yea...
Any project deemed acceptable using the discounted payback period will also be acceptable if using the traditional payback period. True False
The discounted payback period takes the time value of money into account in that it uses discounted free cash flows rather than actual undiscounted free cash flows in calculating the payback period...
The payback period ignores the time value of money and therefore should not be used as a screening device for the selection of capital budgeting projects. True False
Many firms today continue to use the payback method but also employ the NPV or IRR methods especially when large projects are being analyzed. True False
One of the disadvantages of the payback method is that it ignores time value of money. True False
One drawback of the payback method is that some cash flows may be ignored. True False Explain.
If a project is acceptable using the net present value criteria, then it will also be acceptable under the less stringent criteria of the payback period. True False
Project W requires a net investment of $1,000,000 and has a payback period of 5.6 years. You analyze Project W and decide that Year 1 free cash flow is $100,000 too low, and Year 3 free cash flow i...
A project with a payback period of four years is acceptable as long as the company's target payback period is greater than or equal to four years. True False
An investment project costs $13,000 and has annual cash flows of $3,333 for six years. a. What is the discounted payback period if the discount rate is 0%? (Round answer to 2 decimal places.) b. Wh...
Silva Inc., imposes a payback cutoff of three years for its international investment projects. Project India Year 0: -$52,000 Year 1: $19,000 Year 2: $20,000 Year 3: $17,000 Year 4: $4,000 Project...
What is the payback period of the following set of cash flows? Year 0: -$4,050 Year 1: $0 Year 2: $2,000 Year 3: $2,500 Year 4: $2,000
What is the payback period of the following set of cash flows? Year 0: -$3,300 Year 1: $450 Year 2: $1,200 Year 3: $2,500 Year 4: $1,100
What is the payback period of the following set of cash flows? Year 0: -$5,800 Year 1: $1,450 Year 2: $1,650 Year 3: $2,050 Year 4: $1,550
A major disadvantage of the payback period method is it: A) is useless as a risk indicator. B) ignores cash flows beyond the payback period. C) does not directly account for the time value of money...
What is the Payback Method? When would the controller use this calculation? Name several advantages and disadvantages of using this method.
Yummy Brands is considering the purchase of a new machine that dispenses yogurt. The machine cost $500,000. Annual revenues and expenses associated with the new machine follow:
Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 12% , and that the...
Which one of the following statements would generally be considered as accurate given independent projects with conventional cash flows a. The internal rate of return decision may contradict the ne...
An investment project provides cash inflows of $775 per year for six years. What is the project payback period if the initial cost is $2,100? (Enter 0 if the project never pays back. Round answer t...
An investment project provides cash inflows of $250 per year for eight years. What is the project payback period if the initial cost is $3,000? (Enter 0 if the project never pays back. Round answer...
An investment project provides cash inflows of $850 per year for eight years. What is the project payback period if the initial cost is $4,850? (Enter 0 if the project never pays back. Round answer...
An investment project provides cash inflows of $850 per year for seven years. What is the project payback period if the initial cost is $2,025? (Enter 0 if the project never pays back. Round answer...
An investment project provides cash inflows of $630 per year for eight years. What is the project payback period if the initial cost is $1,575? (Enter 0 if the project never pays back. Round answer...
Fiva, Inc., imposes a payback cutoff of three years for its international investment projects. Project A Year 0: -$64,000 Year 1: $25,000 Year 2: $32,000 Year 3: $23,000 Year 4: $10,000 Project B Y...
What is the payback period for the following set of cash flows? (Round answer to 2 decimal places.) Year 0: -$8,020 Year 1: $1,050 Year 2: $2,040 Year 3: $3,030 Year 4: $4,020 Year 5: $5,010
What is the payback period for the following set of cash flows? (Round answer to 2 decimal places.) Year 0: -$10,000 Year 1: $2,000 Year 2: $2,000 Year 3: $2,000 Year 4: $2,000
What is the payback period for the following set of cash flows? (Round answer to 2 decimal places.) Year 0: -$5,700 Year 1: $1,425 Year 2: $1,625 Year 3: $2,025 Year 4: $1,525
Jarvey Company is studying a project that would have a ten-year life and would require a $450,000 investment in equipment that has no salvage value. The project would provide net income each year a...
The management of Unter Corporation, an architectural design firm, is considering an investment with the following cash flows: Year Investment Cash Inflow 1 $53,000 $3,000 2 $3,000 $6,000 3 $14,0...
Why might it be rational for a small firm that does not have access to the capital markets to use the payback method rather than the NPV method?
Explain the relative significance of the unadjusted payback period in this decision situation.
A.) (Ignore income taxes in this problem.) Baldock Inc. is considering the acquisition of a new machine that costs $473,000 and has a useful life of 5 years with no salvage value. The incremental n...
Nick's Novelties, Inc., is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $592,000, have an fifteen-year useful life, and have a...
A company is evaluating three possible investments. The following information is provided by the company: Project A Project B Project C Investment $200,000 $54,000 $200,000 Residual value 0 20,000...
Marie Company is considering buying a new printing press. The printing press costs $100,000 and will be depreciated (straight-line) over 5 years with no salvage value. The net cash inflows generate...
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