Calculate the payback for investment X and Y

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Reference no: EM131952350

Question 1 - Assume a $70,000 investment and the following cash flows for two alternatives.

Year	Investment X	Investment Y
1	$15,000	$35,000
2	24,000	25,000
3	30,000	15,000
4	20,000	-
5	25,000	-

a. Calculate the payback for investment X and Y.

b. Which alternative would you select under the payback method?

Investment X
Investment Y

Question 2 - King's Department Store is contemplating the purchase of a new machine at a cost of $23,105. The machine will provide $3,600 per year in cash flow for ten years. King's has a cost of capital of 11 percent. Use Appendix D for an approximate answer but calculate your final answer using the financial calculator method.

a. What is the internal rate of return?

b. Should the project be undertaken?

Question 3 - Assume a $72,000 investment and the following cash flows for two alternatives.

Year	Investment A	Investment B
1	$25,000	$22,000
2	25,000	15,000
3	15,000	50,000
4	10,000	-
5	30,000	-

a. Calculate the payback for investment A and B.

b. Which investment would you select under the payback method?

Investment A
Investment B

c. If the inflow in the fifth year for Investment A was $30,000,000 instead of $30,000, would your answer change under the payback method?

Note - Do not round intermediate calculations. Round your answers to 2 decimal places.

Reference no: EM131952350

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