ACCT 212 Chapter Notes - Chapter 11: Payback Period, Cash Flow, Net Income
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Cash Payback Period
Primera Banco is evaluating two capital investment proposals for a drive-up ATM kiosk, each requiring an investment of $231,000 and each with an eight-year life and expected total net cash flows of $264,000. Location 1 is expected to provide equal annual net cash flows of $33,000, and Location 2 is expected to have the following unequal annual net cash flows:
Year 1 | $90,000 |
Year 2 | 67,000 |
Year 3 | 44,000 |
Year 4 | 30,000 |
Year 5 | 12,000 |
Year 6 | 9,000 |
Year 7 | 7,000 |
Year 8 | 5,000 |
Determine the cash payback period for both location proposals.
Location 1 | _________________ years |
Location 2 | _________________ years |
Cash Payback Period
Primera Banco is evaluating two capital investment proposals for a drive-up ATM kiosk, each requiring an investment of $164,000 and each with an eight-year life and expected total net cash flows of $328,000. Location 1 is expected to provide equal annual net cash flows of $41,000, and Location 2 is expected to have the following unequal annual net cash flows:
Year 1 | $74,000 | ||||
Year 2 | 56,000 | ||||
Year 3 | 34,000 | ||||
Year 4 | 52,000 | ||||
Year 5 | 39,000 | ||||
Year 6 | 30,000 | ||||
Year 7 | 23,000 | ||||
Year 8 | 20,000 Determine the cash payback period for both location proposals.
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Project A requires a $305,000 initial investment for newmachinery with a five-year life and a salvage value of $41,500. Thecompany uses straight-line depreciation. Project A is expected toyield annual net income of $22,800 per year for the next fiveyears. |
Compute Project A's payback period.
Project A requires a $385,000 initial investment for newmachinery with a five-year life and a salvage value of $33,000. Thecompany uses straight-line depreciation. Project A is expected toyield annual net income of $24,700 per year for the next fiveyears. Compute Project Aâs accounting rate of return.
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