Number 13. Please show work All else equal, the payback period for a project wil
ID: 2737501 • Letter: N
Question
Number 13. Please show work All else equal, the payback period for a project will decrease whenever the a. initial cost increases. b. required return for a project increases. c. assigned discount rate decreases. d. cash inflows arc moved earlier in time. e. duration of a project is lengthened. Peter's Boats has sales of $685.000 and a profit margin of 4.2%. The annual depreciation expense is $57,630. What is the amount of the operating cash flow if the company has no long-term debt? a. $34.000 b. $86.400 c. $1 18,000 d. $ 120,400 e. $123.900 In the present-value break-even the EAC is used to a. determine the opportunity cost of investment. b. allocate depreciation over the life of the project. c. allocate the initial investment at its opportunity cost over the life project. d. determine the contribution margin to fixed costs. e. None of the above.Explanation / Answer
Answer (12)-d. cash inflows are moved earlier in time.
When cash inflows are moved earlier in time, accumulated cash inflow of initial year increases and hence payback period decrease.
Answer 13-b. $86400
Operating cash flow = Net profit + Depreciation
= 685000*4.2% + 57630
=$86400
Answer 14-c allocate the initial investment as its opportunity cost over the life of the project.
EAC is used to compare more than one option having different initial investment by allocating the initial investment over the life of the project.
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