Payback Period. Found inside – Page 1Accessible, engaging and concise, this is the essential resource for finance majors and non-majors alike. This is found by first discounting each cash flow from the project, and then finding the cumulative discounted cash flows. Discounted Payback Period Problems And Solutions Overview. TO DO. A proposed problem solution is profitable if it generates sufficient cash flow to pay back the initial investment and earn an interest rate greater than or equal to the MARR. Engineers seek solutions to problems, and along with the technical aspects, the economic viability of each potential solution is normally considered from a specific viewpoint that reflects its economic utility to a constituency. 65.5k and have a payback period of 2 years and 3 months B. It explains how depreciation indirectly affects the cash flow calculations and why accelerated depreciation methods are … Compute the discounted payback statistic for Project C if the appropriate cost of capital is 8 percent and the maximum allowable discounted payback period is three years. Solutions to Questions and Problems Basic 1. ... Jasper Solutions Ltd. has a total common equity (book value) of $8.55 million and the company has 2.65 million shares outstanding. agency problems that could possibly exist in a firm. Found insideSUMMARY PRACTICE PROBLEMS SOLUTIONS GLOSSARY INDEX ... 3 Examples of Drawbacks of the Payback Period Table 4 Payback Period and Discounted Payback Period ... Cheap essay writing sercice. Found inside – Page 344PROBLEMS. AND. SOLUTIONS. Problem 1 (ROI, Payback Profitability, ... (b) Payback profitability; (c) Discounted payback period; and (d) Profitability index. This new lottery, however, will pay out the award 60 years from today. The live, online version of Wharton Finance for Executives will be delivered online and taught by the same Wharton faculty who teach in the on-campus program. Found inside – Page 5-6The payback period is 4.18 years. ... capita! budgeting decisions: (a) PB method, (b) Rate of return on original investment, and (c) Discounted cash flow. This is because the cash flows have been discounted. b. Found insideA possible solution to this problem is provided by determining the pay back period of ... The discounted payback method still has significant drawbacks. The discounted payback period can be calculated as follows: Discounted Payback Period = 3 + (5000-4973.70)/683.01 = 3.04 years. Find the discounted payback period (in years) for project B. A comparison and contrast between the net present value method and the payback period … You can put this solution on YOUR website! Solution (a) Payback method. This means you can get your essay written well in … Professionals with Financial Modeling skills working in Equity Research, Investment Banking, Credit Ranking Analysis, Financial Analysis, Business Analysis, Project Finance, or Fund Management have an advantageous edge over others. Find the present value of an annuity with periodic payments of $2,000, for a period of 10 years at an interest rate of 6%, discounted semiannually by factor formula? ARR - Project C. What is the average rate of return (ARR) of project C? Concrete costs $15,000/km and lasts 20 years. Discounted Payback Period Problems And Solutions can offer you many choices to save money thanks to 18 active results. Cashflows after the payback period … Required: Evaluate the two alternatives using the following: (a) payback method, (b) rate of return on investment method, and (c) net present value method.You should use a discount rate of 10%. Discounted Payback Period is the time required to recover the present value of cash flows equal to the cost of investment. Financial modeling is emerging as one of the most highly sought after pre-requisites for finance professionals in India. the cost of the machine is 25,000. the machine generates savings of 15,000 annually. Solution Essays is here to solve all your academic problems. Found inside – Page viPop quiz 32 Review problem 32 Problems 32 Answer to pop quiz 35 Solution ... Two discounted cash flow methods 48 Net present value profile 53 Payback ... Discounted Payback Period. • A = end-of-period cash flows in a uniform series of payments continuing for a specified time, starting at the end of the first period and continuing to the end of the last period 3.080 Econ & Enviro Issues In Materials Selection Massachusetts Institute of Technology Department of Materials Science & Engineering Randolph Kirchain Found inside – Page 443PROBLEM. Solution Shown in Appendix A (ST-1) You are a financial analyst for the Hittle Company. ... What is the project's discounted payback period? Found inside – Page ii... Internal Rate of Return Payback Period Discounted Payback Period Average ... the Capital Budgeting Methods Summary Practice Problems Solutions Cost of ... PRESENTED TO:- Prof. Uttam Kumar. Image transcription text Year Cash Flows: Project A (in millions) Cash Flows: Project B (in millions) 0 -125 -140 40 85 2 30 50 85 -20 4 -10 -15 5 70 90 In simple words, it is the number of years needed to recover initial cost (cash outflows) of a project from its future cash inflows. Weaknesses of the Payback Method. It’s a solution to one of the disadvantages mentioned above which says it does not take into account the time value of money. 24,000 of 40,000 = 2 years and 7.2 months. The discounted payback period is just a little different from the normal payback period calculations. Management has set the maximum discounted payback period at 4 years. What is the discounted payback period for these cash flows if the initial cost is $5,200? Cheap paper writing service provides high-quality essays for affordable prices. Answer: Suppose you have 2 investments of $10,000 to choose from. Economic sustainability (EcoSus) does not simply refer to gross national product, exchange rates, inflation, and profit, but it relates to production, distribution, and consumption of goods and services (Mohamed and Antia, 1998). To be acceptable the projects must have DPB < 3 and MIRR > 12%. Amount of each payment: ¥5,250,000. Do you need solutions to your academic problems? Found inside – Page 34As the only method so far in absolute valuation, discounted cash flow method is ... There is another investment criterion, i.e. required payback period. Found inside – Page 421State any limitations of payback period method of capital budgeting, ... investment evaluation technique behind DCF method and Discounted Payback method. Found inside – Page 1The Third Edition includes helpful material on such topics as: Financial models that show the relationship among all facets of the business Planning and scheduling production and related costs Pricing guidelines for products and services ... It might seem impossible to you that all custom-written essays, research papers, speeches, book reviews, and other custom task completed by our writers are both of high quality and cheap. When the cash flows are discounted (10 percent) to compute a Discounted Payback Period, the time period needed to repay the investment is longer. Both machines would have a payback period of 2.5 years; however, the first machine would clearly make you better off. Discounted payback is not a new concept. Found inside – Page 1271( c ) The requirement is to identify the difference between the payback method and the discounted payback method . Answer ( c ) is correct ... ( c ) The payback period is computed by dividing the initial investment by the annual net cash inflow . Depreciation ... Answers ( a ) , ( b ) , and ( c ) are incorrect because all of the other techniques use cash flows as the primary basis for the calculation . 36. ( b ) The ... Found inside – Page iiReading 35 Reading 36 Summary Practice Problems Solutions Capital ... Present Value Internal Rate of Return Payback Period Discounted Payback Period Average ... Payback Period Is Not Realistic as the Only Measurement. E. Payback period F. Discounted payback period 2. The project will yield a positive NPV of Rs. The project will yield a positive NPV of Rs. The organization of this text has been developed to give instructors the flexibility they need. This book is specifically designed to appeal to both accounting and non-accounting majors, exposing students to the core concepts of accounting in familiar ways to build a strong foundation that can be applied across business fields. Payback period does not take into account the level of cash flows of an investment after the payback period.In other words, payback period ignores the overall profitability of … Payback period: Machine A: (24,000 + 32,000 + 1 3/5 of 40,000) = 2 3/5 years. )-17,000 16,000 16,000 16,000 16,000-52,000 (4) Discounted Payback Period Q. Compute the discounted payback period for a project that requires an outlay of Rs 30,000 with annual cash inflows of Rs 16000 for 10 years. The problem for most businesses is that they need to have a better balance of projects and investments so that their short, mid, and long-term needs are all taken care of. Found inside – Page viBEP in terms of physical units Example and Solution 2. BEP in terms of sales value Example-1 and ... Discounted payback period 3. Average rate of return 4. a. What is the project's payback period? The Most Efficient Supercritical CO 2 Extractor For Sale. The agency problem of Tesco and Barclay’s Bank has been analyzed and the feasible solution to the problems has been studied. The cutoff period will remain at three years. It is one of the most reliable techniques used in capital budgeting because it is based on the discounted cash flow approach. Found insidePayback and discounted payback The candidate should be able to: a. ... unequal lives. f. identify and explain alternative solutions to the ranking problem, ... The discounted payback period is the period of time over which the cash flows from an investment pay back the initial investment, factoring in the time value of money. Project B now has a repayment period over four years in length and comes close to consuming the entire cash flows from the five year time period. The discounted payback period (DPP) method is based on the discounted cash flows technique and is used in project valuation as a supplemental screening criterion. This edition helps you connect concepts to the bigger picture with features such as the new chapter opening schema that allows you to see how each chapter’s specific content fits within the overall framework of the book. (Do not round intermediate calculations and round your final answer to 2 decimal places. Assuming the rate is 10%, the present value of the first cash flow would be $909.09, which is $1,000 divided 1+r. The banks of Australian and Canadian companies that purchase electronic tools from HighTech provides letters of credit and are required to conduct payment within 180 days after the goods have been shipped to them. For an initial cost of $12,000, the discounted payback is: Discounted payback = 2 + ($12,000 – $4,504.51 – $4,463.92) / $4,387.15 = 2.69 years (Notice the calculation of discounted payback. The simple payback period formula would be 5 years, the initial investment divided by the cash flow each period. Discounted Payback Period To solve this problem, financial managers often use a discounted payback period. However, the discounted payback period would look at each of those $1,000 cash flows based on its present value. Payback Period Method A way of judging capital investments that bases the decision to invest in capital equipment on the minimum length of time it will take to earn back in CASH the amount of the initial INVESTMENT. Discounted Payback Period (DPP), on the other hand, is defined as the period which solves Nh C+ (2) £ (l+k)+ T~ Cr> ° where k is the cost of capital or the opportunity cost of funds to the firm. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Discounted payback period refers to the time period required to recover its initial cash outlay and it is calculated by discounting the cash flows that are to be generated in future and then totaling the present value of future cash flows where discounting is done by the weighted average cost of capital or internal rate of return. e. Compute the discounted payback period. Found inside – Page 280One of the acute problems of animal husbandry and poultry farming is the ... Indicator Value Payback period 36 months Discounted payback period 60 months ... This article explains about the concept of depreciation tax shields. a. Find the present value of an annuity with periodic payments of $2,000, for a period of 10 years at an interest rate of 6%, discounted semiannually by factor formula? Why this can be a problem when analyzing the payback period can be explained through a simple example. Found inside – Page 1126Answer (d) is incorrect because neither the payback method nor the discounted payback method considers variability of return. 34. (c) The payback period is ... ... (IRR) method, discounted payback period method. 365.5k and have a payback period of 2 years and 3 months D. This custom edition is specifically published for Australian National University. Discounted Payback period SlideShare. (Enter O if the project never pays back. Question: Why is it a problem to ignore the time value of money when calculating the payback period? Found inside – Page xxviii299 10.3 THE PAYBACK PERIOD 313 Computing the Payback Period 313 How the ... of Key Equations • Self-Study Problems • Solutions to Self-Study Problems ... Non-conventional cash flows (Rs. the discounted payback period takes into account that the 15,000 annual savings is less … Found inside – Page 55... Simple Payback Period and (b) Discounted Payback period giving a discount rate of 10 per cent. Solution : (a) Simple Payback Period Cash-inflows Years ... Also available with MyLab Accounting MyLab™ Accounting is an online homework, tutorial, and assessment program designed to work with this text to engage students and improve results. Found inside – Page 300SOLVED PROBLEMS 11.1 The expected cash flows of a project are as follows : Year Cash flow 0 ... ( e ) payback period , and ( f ) discounted payback period . Payback period 166 Accounting rate of return (ARR) 169 Summary 171 Sample examination question 171 Chapter 13: Making decisions 3 173 Aims and learning objectives 173 Essential reading 173 Further reading 173 Introduction 173 Discounted cash flow techniques 174 Summary 182 Sample examination questions 182 Chapter 14: Planning for the future 185 The Payback period is a capital budgeting technique based on establishing how long it takes to recover the initial investment from the cumulative cash flows. MARR = 12%. The first investment generates cash inflows of $8,000 … Are you having problems with citing sources? 10) Find out the internal rate of … Solution: PVA 10 = 2,000 (PVIFA 6%/2, 10*2) PVA 10 = 2,000 (2.1065) Answer: $4,213 more. Nielsen Inc. is switching from the payback period to the discounted payback period for small-dollar projects. The first period will experience a +$1,000 cash inflow. There is some usefulness to this method, especially in quick-moving industries with a lot of rapid change. The company’s cost of capital is 13% and the firm expects to reinvest any cash inflows at this rate. We offer all types of homework help such as term papers, course work, research work, and all other assignments. The various investment appraisal techniques have been studied. the projected payback moment plus an assigned probability of cash inflows beyond the payback period. Capital projects are those that last more than one year. 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