Acme, Inc. is considering a four-year project that has initial outlay or cost of $100,000. The respective cash inflows for years 1, 2, 3 and 4 are: $50,000, $40,000, $30,000 and $20,000
Acme uses the discounted payback period method, and has a discount rate of 11.50%. Will Acme accept the project if it's payback period is 37 months?
A) Yes, because it pays back in less than 37 months.
B) No, because it pays back in over 37 months.
C) No, because it pays back in over 38 months.
D) No, because it pays back in over 40 months.
Answer: B
Explanation: B) We first discount all after-tax cash inflows, which gives us after-tax cash inflows of $44,843.05, $32,174.39, $21,641.96, and $12,939.89. After three years or 36 months, we will have paid back $98,659.40, leaving $1,340.60 to pay back in after-tax cash flows in the fourth year. Since we get $12,939.89 in the fourth year, the rule of thumb is to divide what is needed by the cash inflows we will get next period and add it to the number of previous periods of cash inflows, e.g., ($1,340.60 divided by $12,939.89) + 3. Doing this gives 3.104. Thus, the payback period in months is 3.104 × 12 = 37.243 months. Because this is over 37 months, Acme does not accept the project.
You might also like to view...
Label and number each map, explaining its features and including _________________
a. a GIS database number b. an informative caption c. a governing scale d. a simple color scheme
A collective mark is used in connection with goods or services to certify their regional origin
a. True b. False Indicate whether the statement is true or false
Fesler Inc. acquired all of the outstanding common stock of Pickett Company on January 1, 2017. Annual amortization of $22,000 resulted from this transaction. On the date of the acquisition, Fesler reported retained earnings of $520,000 while Pickett reported a $240,000 balance for retained earnings. Fesler reported net income of $100,000 in 2017 and $68,000 in 2018, and paid dividends of $25,000 in dividends each year. Pickett reported net income of $24,000 in 2017 and $36,000 in 2018, and paid dividends of $10,000 in dividends each year.If the parent's net income reflected use of the initial value method, what were the consolidated retained earnings on December 31, 2018?
What will be an ideal response?
If a column contains a large number of NULL values, a(n) ____________________ can quickly help determine the rows that contain NULL values and those that do not
Fill in the blank(s) with correct word