Question

Q1. a What is the payback period on each of the following projects? Cash Flows ($) Project CO C1 C2 C3 C4 A -50,000 +10,000 +10,000 +30,000 0 B -10,000 0 +10,000 +20,000 +30,000 C -50,000 +10,000 +10,000 +30,000 +50,000 b. Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept? c. If the opportunity cost of capital is 10 percent, which projects have posi- tive NPVs? n NPV = \sum_{t=0}^{n} \frac{EATCF}{(1 + k)^t}

          Q1. a
What is the payback period on each of the following projects?
Cash Flows ($)
Project CO
C1
C2
C3
C4
A
-50,000
+10,000
+10,000
+30,000
0
B
-10,000
0
+10,000
+20,000
+30,000
C
-50,000
+10,000
+10,000
+30,000
+50,000
b. Given that you wish to use the payback rule with a cutoff period of two
years, which projects would you accept?
c. If the opportunity cost of capital is 10 percent, which projects have posi-
tive NPVs?
n
NPV = \sum_{t=0}^{n} \frac{EATCF}{(1 + k)^t}

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Q1. a
What is the payback period on each of the following projects?
Cash Flows ()
Project CO
C1
C2
C3
C4
A
-50,000
+10,000
+10,000
+30,000
0
B
-10,000
0
+10,000
+20,000
+30,000
C
-50,000
+10,000
+10,000
+30,000
+50,000
b. Given that you wish to use the payback rule with a cutoff period of two
years, which projects would you accept?
c. If the opportunity cost of capital is 10 percent, which projects have posi-
tive NPVs?
n
NPV = ∑t=0^n(EATCF)/((1 + k)^t)

Added by Purificaci-N M.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

Instant Answer

Solved by Expert Akash M

07/27/2023

Step 1

For Project A: Cumulative cash flows: Year 0: -50,000 Year 1: -50,000 + 10,000 = -40,000 Year 2: -40,000 + 10,000 = -30,000 Year 3: -30,000 + 10,000 = -20,000 Year 4: -20,000 + 10,000 = -10,000 Year 5: -10,000 + 10,000 = 0 For Project C: Cumulative cash Show more…

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Q1. What is the payback period on each of the following projects? Cash Flows ($) C1 C2 C3 C4 Project CO A -50,000 10,000 10,000 0 10,000 10,000 Project C -50,000 10,000 30,000 20,000 30,000 50,000 b. Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept? c. If the opportunity cost of capital is 10 percent, which projects have positive NPVs? EATCF VPV = 0= 1+k

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