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Need BOLD areas answered. Gardial Fisheries is considering two mutually exclusive investments. The projects' expected net cash flows are as follows: Expected Net Cash Flows
Need BOLD areas answered.
| Gardial Fisheries is considering two mutually exclusive investments. The projects' expected net cash flows are as follows: | |||||||||
| Expected Net Cash Flows | |||||||||
| Time | Project A | Project B | |||||||
| 0 | ($375) | ($575) | |||||||
| 1 | ($300) | $190 | |||||||
| 2 | ($200) | $190 | |||||||
| 3 | ($100) | $190 | |||||||
| 4 | $600 | $190 | |||||||
| 5 | $600 | $190 | |||||||
| 6 | $926 | $190 | |||||||
| 7 | ($200) | $0 | |||||||
| f. What is the regular payback period for these two projects? | |||||||||
| Project A | |||||||||
| Time period | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | |
| Cash flow | (375) | (300) | (200) | (100) | 600 | $600 | $926 | ($200) | |
| Cumulative cash flow | -$375 | -$675 | -$875 | -$975 | -$375 | $225 | $1,151 | $951 | |
| Intermediate calculation for payback | |||||||||
| Payback using intermediate calculations | 4.625 | ||||||||
| Project B | |||||||||
| Time period | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | |
| Cash flow | -$575 | $190 | $190 | $190 | $190 | $190 | $190 | $0 | |
| Cumulative cash flow | -$575 | -$385 | -$195 | -$5 | $185 | $375 | $565 | $565 | |
| Intermediate calculation for payback | |||||||||
| Payback using intermediate calculations | 3.026 | ||||||||
| g. At a cost of capital of 12%, what is the discounted payback period for these two projects? | |||||||||
| WACC = | 12% | ||||||||
| Project A | |||||||||
| Time period | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | |
| Cash flow | -$375 | -$300 | -$200 | -$100 | $600 | $600 | $926 | -$200 | |
| Disc. cash flow | -$375 | -$268 | -$159 | -$71 | $381 | $340 | $469 | -$90 | |
| Disc. cum. cash flow | -$375 | -$643 | -$802 | -$873 | -$492 | -$152 | $317 | $227 | |
| Intermediate calculation for payback | |||||||||
| Payback using intermediate calculations | 5.400 | ||||||||
| Project B | |||||||||
| Time period | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | |
| Cash flow | -$575 | $190 | $190 | $190 | $190 | $190 | $190 | $0 | |
| Disc. cash flow | -$575 | $170 | $151 | $135 | $121 | $108 | $96 | $0 | |
| Disc. cum. cash flow | -$575 | -$405 | -$254 | -$119 | $2 | $110 | $206 | $206 | |
| Intermediate calculation for payback | |||||||||
| Payback using intermediate calculation | |||||||||
| Discounted Payback using PERCENTRANK | Ok because cash flows follow normal pattern. | ||||||||
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Financial Accounting And Reporting
Authors: Mr Barry Elliott, Jamie Elliott
16th Edition
027377817X, 978-0273778172
