BAP Corporation is reviewing an investment proposal. The initial cost and estima
ID: 2467679 • Letter: B
Question
BAP Corporation is reviewing an investment proposal. The initial cost and estimates of the book value of the investment at the end of each year, the net cash flows for each year, and the net income for each year are presented in the schedule below. All cash flows are assumed to take place at the end of the year. The salvage value of the investment at the end of each year is equal to its book value. There would be no salvage value at the end of the investment's life Investment Proposal Annual Cash Flows Annual Net Income Initial Cost Year and Book Value $105,570 70,750 41,080 20,300 8,910 $44,000 39,800 34,300 29,600 25,600 $9,180 10,130 13,520 18,210 16,690 4 BAP Corporation uses a 12% target rate of return for new investment proposals. (Refer the below table) TABLE 3 Present Value of 1 Periods 5% 6% 7% 8% 9% 10% 11% 12% 15% 4% .96154 95238 .94340 0.93458 92593 .91743 90909 90090 89286 86957 .92456 .90703 .89000 0.87344 8573484168 82645 81162 .79719 .75614 .88900 86384 83962 0.81630 .79383 .77218.75132 .73119 .71178 65752 85480 82270 .79209 0.76290 .73503 .70843 68301 .82193 .78353 .74726 0.71299 68058 64993 62092 .59345 .56743 49718 .7903 74622 .70496 0.66634 63017 .59627 56447.53464 .50663 43233 75992 4 65873 63552 .57175 0 62275 54703 15235 37594Explanation / Answer
Ans-
It is going from negative to positiva cash flow in 3rd year so answer would be 2years+.64=2.64 years
in same way,3.54871 =3+.54871 (10322/18811)
Undiscounted Payback Period Analysis Projected Year 1 Year 2 Year 3 Year 4 Year 5 Undiscounted Net Cash Flow $ (105,750) $ 44,000 $ 39,800 $ 34,300 $ 29,600 $ 25,600 Cumulative Net Cash Flow (61,750) (21,950) 12,350 41,950 67,550Related Questions
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