Requirement 3. Explain why the payback method does not lead to an optimal decision for the Rosetta Company. The payback model, which (5) the overall profitability of the two investments and (6) all cash flows beyond the payback period, (7). As is the case for the investment alteratives for Rosetta Company, the investment that recoups its initial investment faster is also the investment that has (8) This difference in the cash flow stream causes the investment with the more desirable payback period to (9) 1: Data Table Present Value of $1 Period 3% 4% 5% 6% 7% 8% 10% 12% 14% 16% 18% 20% 25% 1 .9709 9615 .9426 9246 2 3 .9151 .8890 4 8885 .8548 5 8626 8219 6 .8375 .7903 7 8131 7599 8 .7894 .7307 9 7664 .7026 .9524 .9434 9346 9259 9091 8929 .8772 8621 .84758333 8000 .9070 8900 8734 8573 8264 7972 7695 7432 7182.6944 6400 .8638 8396 8163 7938 7513 7118 6750 6407 .6086 5787 5120 .8227 7921 76297350 6830 6355 5921 5523 5158 4823 4096 7835 .7473 7130 6806 6209 5674 5194 4761 4371 40193277 7462 .7050 6663 6302 5645 5066 4556 4104 3704 3349 2621 7107 6651 6227 5835 5132 4523 3996 3538 3139 2791 2097 .6768 .6274 5820 5403 46654039 3506 3050 2660 2326 1678 .6446 59195439 5002 4241 3606 3075 2630 .2255 1938 1342 .6139 5584 5083 4632 3855 3855 3220 2697 2267 1911 .1615 1074 5568 4970 4440 3971 3186 2567 2076 1685 1372 1122 0687 .4810 4173 3624 3152 2394 18271401 1079 0835 06490352 4155 3503 2959 .2502 1799 1300 0946 0691 0508 0376 0180 3769 3118 2584 2145 1486 1037 .0728 0514 .0365 0261 0115 2953 2330 1842 .14600923 0588 0378 0245 .0160 0105 0038 2551 .1956 1504 . 1159 069304190255 0157.0097 0061 2314 1741 1314 .0994 0573 .0573 0334 .0196 0116 .0070 00420012 10 .7441 .6756 12 .7014 6246 15 6419 5553 18 5874 4936 20 5537 4564 4776 3751 25 28 4371 3335 .0019 30 4120 3083 2: Data Table Present Value of Ordinary Annuity of $1 Period 3% 4% 5% 6% 7% 8% 10% 12% 14% 16% 18% 20% 25% 1 9709 9615 9524 9434 9346 .9259 .9091 .8929 8772 .8621 .8475 .8333 8000 2 1.9135 1.8861 1.8594 1.8334 1.8080 1.7833 1.7355 1.6901 1.6467 1.6052 1.5656 1.5278 1.4400 3 2.8286 2.7751 2.7232 2.6730 2.6243 2.5771 2.4869 2.4018 2.3216 2.2459 2.1743 2.1065 1.9520 4 3.7171 3.6299 3.5460 3.4651 3.3872 3.3121 3.1699 3.0373 2.9137 2.7982 2.6901 2.5887 2.3616 5 4.5797 4.4518 4.3295 4.2124 4.1002 3.9927 3.7908 3.6048 3.4331 3.2743 3.1272 2.9906 2.6893 6 5.4172 5.2421 5.0757 4.9173 4.7665 4.6229 4.3553 4.1114 3.8887 3.6847 3.4976 3.3255 2.9514 7 6.2303 6.0021 5.7864 5.5824 5.3893 5.2064 4.8684 4.5638 4.2883 4.0386 3.8115 3.6046 3.1611 8 7.0197 6.7327 6.4632 6.2098 5.9713 5.7466 5.3349 4.9676 4.6389 4.3436 4.0776 3.8372 3.3289 9 7.7861 7.4353 7.1078 6.8017 6.5152 6.2469 5.7590 5.3282 4.9464 4.6065 4.3030 4.0310 3.4631 10 8.5302 8.1109 7.7217 7.3601 7.0236 6.7101 6.1446 5.6502 5.2161 4.8332 4.4941 4.1925 3.5705 12 9.9540 9.3851 8.8633 8.3838 7.9427 7.5361 6.8137 6.1944 5.6603 5.1971 4.7932 4.4392 3.7251 15 11.9379 11.1184 10.3797 9.7122 9.1079 8.5595 7.6061 6.8109 6.1422 5.5755 5.0916 4.6755 3.8593 18 13.7535 12.6593 11.6896 10.8276 10.0591 9.3719 8.2014 7.2497 6.4674 5.8178 5.2732 4.8122 3.9279 20 14.8775 13.5903 12.4622 11.4699 10.5940 9.8181 8.5136 7.4694 6.6231 5.9288 5.3527 4.8696 3.9539 25 17.4131 15.6221 14.0939 12.7834 11.6536 10.6748 9.0770 7.8431 6.8729 6.0971 5.4669 4.9476 3.9849 28 18.7641 16.6631 14.8981 13.4062 12.1371 11.0511 9.3066 7.9844 6.9607 6.1520 5.5016 4.9697 3.9923 30 19.6004 17.2920 15.3725 13.7648 12.4090 11.2578 9.4269 8.0552 7.0027 6.1772 5.5168 4.9789 3.9950 3: Requirements 1. Determine the payback period for each investment. Which investment is most desirable using the payback method? 2. Compute the NPV of each investment using a required rate of return of 8%. Which investment is most desirable using the NPV method? 3. Explain why the payback method does not lead to an optimal decision for the Rosetta Company (1) 0 Years 0 Years (3) Investment B O Investment A (4) O Investment B O Investment A (5) O considers O does not consider O Incremental cash inflow from operations Incremental amount invested Net present value (2) O Incremental cash inflow from operations O Incremental amount invested Net present value (6) O accounts for O accounts only for ignores (9) (7) O gives all cash inflows, regardless of when received the same value as dollars at time zero. O accounts for the time value of money by discounting future cash flows to present value dollars. (8) O cash inflows over a longer period of time. cash inflows that cease before the alternative investment. also be the investment with the more desirable NPV. O be the investment with the less desirable NPV. Rosetta Company is considering two possible investments, each of which requires an initial investment of $18,000. Investment A will provide a cash flow of $9,000 at the end of each year for 4 years. Investment B will provide a cash flow of $6,000 at the end of each year for 8 years. (Click the icon to view the present value factor table.) 2 (Click the icon to view the present value annuity factor table.) Read the requirements Requirement 1. Determine the payback period for each investment. Which investment is most desirable using the payback method? Begin by selecting the formula and then entering the amounts to calculate the payback period for each investment (1) (2 Payback period years Investment A Investment B years Which investment is most desirable using the payback method? (3) Requirement 2. Compute the NPV of each investment using a required rate of return of 8%. Which investment is most desirable using the NPV method? Begin by calculating the net present value (NPV) of investment A. (Enter the present value factor to four decimal places, "X.XXXX." Round dollar amounts the nearest whole number. Use a minus sign or parentheses for a negative net present value.) Present value of Ordinary Annuity of $1 at 4 years, 8% Annual Cash Total Present Inflow Value Net present value: Present value of annuity of equal annual net cash inflows per year = Less: Initial investment Net present value Now calculate the NPV of investment B. (Enter the present value factor to four decimal places, "XXXXX" Round dollar amounts the nearest whole number. Use a minus sign or parentheses for a negative net present value.) Present value of Ordinary Annuity of $1 at 8 years, 8% Annual Cash Total Present Value Inflow Net present value: Present value of annuity of equal annual net cash inflows per year = Less: Initial investment Net present value Which investment is most desirable using the NPV method? (4) Requirement 3. Explain why the payback method does not lead to an optimal decision for the Rosetta Company. The payback model, which (5) the overall profitability of the two investments and (6) all cash flows beyond the payback period, (7). As is the case for the investment alteratives for Rosetta Company, the investment that recoups its initial investment faster is also the investment that has (8) This difference in the cash flow stream causes the investment with the more desirable payback period to (9) 1: Data Table Present Value of $1 Period 3% 4% 5% 6% 7% 8% 10% 12% 14% 16% 18% 20% 25% 1 .9709 9615 .9426 9246 2 3 .9151 .8890 4 8885 .8548 5 8626 8219 6 .8375 .7903 7 8131 7599 8 .7894 .7307 9 7664 .7026 .9524 .9434 9346 9259 9091 8929 .8772 8621 .84758333 8000 .9070 8900 8734 8573 8264 7972 7695 7432 7182.6944 6400 .8638 8396 8163 7938 7513 7118 6750 6407 .6086 5787 5120 .8227 7921 76297350 6830 6355 5921 5523 5158 4823 4096 7835 .7473 7130 6806 6209 5674 5194 4761 4371 40193277 7462 .7050 6663 6302 5645 5066 4556 4104 3704 3349 2621 7107 6651 6227 5835 5132 4523 3996 3538 3139 2791 2097 .6768 .6274 5820 5403 46654039 3506 3050 2660 2326 1678 .6446 59195439 5002 4241 3606 3075 2630 .2255 1938 1342 .6139 5584 5083 4632 3855 3855 3220 2697 2267 1911 .1615 1074 5568 4970 4440 3971 3186 2567 2076 1685 1372 1122 0687 .4810 4173 3624 3152 2394 18271401 1079 0835 06490352 4155 3503 2959 .2502 1799 1300 0946 0691 0508 0376 0180 3769 3118 2584 2145 1486 1037 .0728 0514 .0365 0261 0115 2953 2330 1842 .14600923 0588 0378 0245 .0160 0105 0038 2551 .1956 1504 . 1159 069304190255 0157.0097 0061 2314 1741 1314 .0994 0573 .0573 0334 .0196 0116 .0070 00420012 10 .7441 .6756 12 .7014 6246 15 6419 5553 18 5874 4936 20 5537 4564 4776 3751 25 28 4371 3335 .0019 30 4120 3083 2: Data Table Present Value of Ordinary Annuity of $1 Period 3% 4% 5% 6% 7% 8% 10% 12% 14% 16% 18% 20% 25% 1 9709 9615 9524 9434 9346 .9259 .9091 .8929 8772 .8621 .8475 .8333 8000 2 1.9135 1.8861 1.8594 1.8334 1.8080 1.7833 1.7355 1.6901 1.6467 1.6052 1.5656 1.5278 1.4400 3 2.8286 2.7751 2.7232 2.6730 2.6243 2.5771 2.4869 2.4018 2.3216 2.2459 2.1743 2.1065 1.9520 4 3.7171 3.6299 3.5460 3.4651 3.3872 3.3121 3.1699 3.0373 2.9137 2.7982 2.6901 2.5887 2.3616 5 4.5797 4.4518 4.3295 4.2124 4.1002 3.9927 3.7908 3.6048 3.4331 3.2743 3.1272 2.9906 2.6893 6 5.4172 5.2421 5.0757 4.9173 4.7665 4.6229 4.3553 4.1114 3.8887 3.6847 3.4976 3.3255 2.9514 7 6.2303 6.0021 5.7864 5.5824 5.3893 5.2064 4.8684 4.5638 4.2883 4.0386 3.8115 3.6046 3.1611 8 7.0197 6.7327 6.4632 6.2098 5.9713 5.7466 5.3349 4.9676 4.6389 4.3436 4.0776 3.8372 3.3289 9 7.7861 7.4353 7.1078 6.8017 6.5152 6.2469 5.7590 5.3282 4.9464 4.6065 4.3030 4.0310 3.4631 10 8.5302 8.1109 7.7217 7.3601 7.0236 6.7101 6.1446 5.6502 5.2161 4.8332 4.4941 4.1925 3.5705 12 9.9540 9.3851 8.8633 8.3838 7.9427 7.5361 6.8137 6.1944 5.6603 5.1971 4.7932 4.4392 3.7251 15 11.9379 11.1184 10.3797 9.7122 9.1079 8.5595 7.6061 6.8109 6.1422 5.5755 5.0916 4.6755 3.8593 18 13.7535 12.6593 11.6896 10.8276 10.0591 9.3719 8.2014 7.2497 6.4674 5.8178 5.2732 4.8122 3.9279 20 14.8775 13.5903 12.4622 11.4699 10.5940 9.8181 8.5136 7.4694 6.6231 5.9288 5.3527 4.8696 3.9539 25 17.4131 15.6221 14.0939 12.7834 11.6536 10.6748 9.0770 7.8431 6.8729 6.0971 5.4669 4.9476 3.9849 28 18.7641 16.6631 14.8981 13.4062 12.1371 11.0511 9.3066 7.9844 6.9607 6.1520 5.5016 4.9697 3.9923 30 19.6004 17.2920 15.3725 13.7648 12.4090 11.2578 9.4269 8.0552 7.0027 6.1772 5.5168 4.9789 3.9950 3: Requirements 1. Determine the payback period for each investment. Which investment is most desirable using the payback method? 2. Compute the NPV of each investment using a required rate of return of 8%. Which investment is most desirable using the NPV method? 3. Explain why the payback method does not lead to an optimal decision for the Rosetta Company (1) 0 Years 0 Years (3) Investment B O Investment A (4) O Investment B O Investment A (5) O considers O does not consider O Incremental cash inflow from operations Incremental amount invested Net present value (2) O Incremental cash inflow from operations O Incremental amount invested Net present value (6) O accounts for O accounts only for ignores (9) (7) O gives all cash inflows, regardless of when received the same value as dollars at time zero. O accounts for the time value of money by discounting future cash flows to present value dollars. (8) O cash inflows over a longer period of time. cash inflows that cease before the alternative investment. also be the investment with the more desirable NPV. O be the investment with the less desirable NPV. Rosetta Company is considering two possible investments, each of which requires an initial investment of $18,000. Investment A will provide a cash flow of $9,000 at the end of each year for 4 years. Investment B will provide a cash flow of $6,000 at the end of each year for 8 years. (Click the icon to view the present value factor table.) 2 (Click the icon to view the present value annuity factor table.) Read the requirements Requirement 1. Determine the payback period for each investment. Which investment is most desirable using the payback method? Begin by selecting the formula and then entering the amounts to calculate the payback period for each investment (1) (2 Payback period years Investment A Investment B years Which investment is most desirable using the payback method? (3) Requirement 2. Compute the NPV of each investment using a required rate of return of 8%. Which investment is most desirable using the NPV method? Begin by calculating the net present value (NPV) of investment A. (Enter the present value factor to four decimal places, "X.XXXX." Round dollar amounts the nearest whole number. Use a minus sign or parentheses for a negative net present value.) Present value of Ordinary Annuity of $1 at 4 years, 8% Annual Cash Total Present Inflow Value Net present value: Present value of annuity of equal annual net cash inflows per year = Less: Initial investment Net present value Now calculate the NPV of investment B. (Enter the present value factor to four decimal places, "XXXXX" Round dollar amounts the nearest whole number. Use a minus sign or parentheses for a negative net present value.) Present value of Ordinary Annuity of $1 at 8 years, 8% Annual Cash Total Present Value Inflow Net present value: Present value of annuity of equal annual net cash inflows per year = Less: Initial investment Net present value Which investment is most desirable using the NPV method? (4)