Business, 07.07.2019 05:30 spowell4657

Kathleen dancewear co. has bought some new machinery at a cost of $1,250,000. the impact of the new machinery will be felt in the additional annual cash flows of $375,000 over the next five years. the firm's cost of capital is 10 percent. what is the discounted payback period for this project? if its acceptance period is three years, will this project be accepted? (do not round intermediate computations. round your answer to one decimal place.)

Answers: 1

Show answers

Answers

Answer from: googoo4

The discounted payback period for this project is 4.3 years. If Kathleen Danceware Co. accepts projects that have a discounted payback period of three years, the company will not accept the project.

We calculate the Discounted Value of the cash flows for each year with the following formula

$\mathbf{PV_{n} = \frac{FV}{(1+r)^n}}$

where

FV represents the cash flows in each of the years from year 1 to year 5

r is the firm's cost of capital at 10%

n starts from 1 for the first year ans increases sequentially until year 5

For eg, the PV of cash flows in year 3 will be

$\mathbf{PV_{3} = \frac{375,000}{(1.1)^3}} = 2,81,743.05$

The following table gives us the Discounted cash flows and cumulative discounted cash flows. The cumulative discounted cash flows column help us determining the payback period.

Total Investment $1250000

YearCash FlowDiscounted Cash Flow at 10%Cumulative Cash Flows

1 375000 3,40,909.09 3,40,909.09

2 375000 3,09,917.36 6,50,826.45

3 375000 2,81,743.05 9,32,569.50

4 375000 2,56,130.05 11,88,699.54

5 375000 2,32,845.50 14,21,545.04

We calculate Cumulative Cash flows by adding the previous year's or years' total discounted cash flows to current year's cash flows.

For e.g. $Cumulative Cash Flows_{2} = Cash flow _{1} + Cash Flow_{2}}$

Substituting the values we get,

6,50,826.45 = 3,40,909.09 + 3,09,917.36}

We calculate the cumulative cash flows for each of the following years in the same manner

From the table, we see that the project will recover its investment between 4 and 5 years.

We can find the exact time as follows:

$Discounted Payback Period = 4 + \frac{1250000 - 11,88,699.54}{2,32,845.50}$

$Discounted Payback Period = 4 + \frac{61,300.46}{2,32,845.50}$

Discounted Payback Period = 4.263266667

Answer from: Quest

the answer is b hope you pass

Answer from: Quest

explanation:

Another question on Business

Business, 21.06.2019 17:30

Following are the transactions for valdez services. the company paid $2,000 cash for payment on a 6-month-old account payable for office supplies. the company paid $1,200 cash for the just completed two-week salary of the receptionist. the company paid $39,000 cash for equipment purchased. the company paid $800 cash for this month’s utilities. the company paid $4,500 cash in dividends to the owner (sole shareholder). examine the above transactions and identify those that create expenses for valdez services. prepare general journal entries to record those transactions that created expenses in the above given order.

Answers: 2

Answer

Business, 21.06.2019 21:40

Tandard product costs deerfield company manufactures product m in its factory. production of m requires 2 pounds of material p, costing $4 per pound and 0.5 hour of direct labor costing, $10 per hour. the variable overhead rate is $8 per direct labor hour, and the fixed overhead rate is $12 per direct labor hour. what is the standard product cost for product m? direct material answer direct labor answer variable overhead answer fixed overhead answer standard product cost per unit answer

Answers: 1

Answer

Business, 22.06.2019 05:20

Social computing forces companies to deal with customers as opposed to

Answers: 2

Answer

Business, 22.06.2019 08:30

Which of the following is an example of search costs? a.) driving to a faraway place to find available goods b.) buying goods in some special way that is outside the normal channels c.) paying a premium cost for goods d.) selling extra goods for a discount price

Answers: 1

Answer

You know the right answer?

Kathleen dancewear co. has bought some new machinery at a cost of $1,250,000. the impact of the new...

Questions