14,430 9,435 13,875 $72,150 $77,145 $108,225 Depreciation is computed by the str

Question

14,430

9,435

13,875

$72,150

$77,145

$108,225

Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 15%. (Assume that cash flows occur evenly throughout the year.)

Dinkel Company is considering three long-term capital investment proposals. Each investment has a useful life of 5 years. Relevant data on each project are as follows.

Project Granada Project Jackson Project Dorantes Capital investment $172,050 $183,150 $210,600 Annual net income:


Year 1 14,430 19,425 30,525 2 14,430 18,315 24,975
3 14,430 17,205 23,865
4 14,430 12,765 14,985
5

14,430

9,435

13,875

Total

$72,150

$77,145

$108,225

Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 15%. (Assume that cash flows occur evenly throughout the year.)

Explanation / Answer

pay back periodof granada

depriciation of granada = 172050/5 = 34410

for year 1 172050 - 34410 - 14430

for year 2 : 123210- 34410 - 14430

for year 3:74370- 34410 - 14430

for year 4:: 25530/48840 = 0.627 year

hence pay back period of granada = 3.627 years

pay back periodof jackson

depriciation of granada = 183150/5 = 36630

for year 1 183150 - 36630 - 19425

for year 2 : 127095- 36630 - 18315

for year 3:72150- 36630 - 17205

for year 4:: 18315/49395 = 0.445 year

hence pay back period of jackson= 3.445 years

pay back periodof granada

depriciation of dorantes = 210600/5 =42120

for year 1 210600 - 42120 - 30525

for year 2 : 137955- 42120 - 24975

for year 3:70860- 42120 - 23865

for year 4:: 4875/57105 = 0.102 year

hence pay back period of granada = 3.102 years

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