The length of time required to receive the initial investment in a capital asset

Question

The length of time required to receive the initial investment in a capital asset is known as the: the rate of return Investment period Present value period payback period Beach incorporated a wholesale distribution company of surfboards, is considering whether to open a new distribution center located in San Diego, California. The center would open January 1, 2017. To make the decision, the board of directions requires a master budget for the center's first quarter of operations [January, February and march of 2017]. Required: 1^st quarter master budget based on the following expectations: January sales are estimated to be dollar 150,000 of which dollar 5O.OOO will be cash sales and dollar 100, 000 will be on credit. The company expects sales to grow 10perentage per month for the first few operations. Prepare a sales budget for the fast quarter. Beach expects to collection 100percentage of accounts receivable in the month following the sale. Estimated cash sales each month equals 25percentage of sales. Prepare a schedule of expected cash receipts for the first quarter. Using the information developed in requirements o and b to determine the amount of accounts receivable on March 31, pro forma balance sheet and the amount of sales for the first quarter pro forma income statement. Cost of goods sold will be 60% of sales. Beach's policy is to budget an ending inventory balance equal to 25 percentage of the next month's projected cost of goods sold. Assume Beach expects April cost of goods sold to be dollar 119,790. Prepare an inventory purchases budget. AW inventory purchases are on account. Beach pays 70p of accounts payable In the month of purchase. It pays remaining 30 percentage in the following month. Prepare a schedule of expected cash payments for Inventory purchases. Use the information developed in requirements d and e to determine the amount of cost of goods sold on the first quarter pro forma income statement and the amounts of ending inventory and accounts payable on the March 31 pro forma balance sheet.

Explanation / Answer

Solution.

Q20.

D . Payback period.

The payback period is the length of time required to recover the cost of an investment. The payback period of a given investment or project is an important determinant of whether to undertake the position or project, as longer payback periods are typically not desirable for investment positions.

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