Question
Both Problem are related on some part So Solve Both. PLEASE!!!!! I) The Turnkey Company is considering buying new equipment. The following table includes the
Both Problem are related on some part So Solve Both. PLEASE!!!!!
I) The Turnkey Company is considering buying new equipment. The following table includes the estimated Cash Flows associated with the new equipment.
- Complete the table below using the Payback Period Method
| Year | Cash Flow | Cumulative |
| 0 | -32,000 |
|
| 1 | 0 |
|
| 2 | 12,000 |
|
| 3 | 21,000 |
|
| 4 | 10,000 |
|
- What is the Payback Period for the new equipment? _______
- Assume Turnkey management wants its money back within 3 years. Would management purchase this new equipment if Turnkey used the Payback Period Method? ____ Explain.
II) Below is a table of Cash flow estimates given Turnkey purchases another type of equipment.
- Complete the table below using the Discounted Payback Period. Assume the wacc=8%
| Year | Cash Flow | PV Cash Flows | Cumulative |
| 0 | -22,000 |
|
|
| 1 | 0 |
|
|
| 2 | 16,000 |
|
|
| 3 | 13,000 |
|
|
| 4 | 10,000 |
|
|
- What is the Discounted Payback Period? _____
- Assume management wants its money back within 3.5 years. Assume wacc=8%. Would Turnkey management accept this project if they used the Discounted Payback Method? _______Explain.
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Valuation The Art and Science of Corporate Investment Decisions
Authors: Sheridan Titman, John D. Martin
3rd edition
978-0133479522
