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  • Cash Payback Period Cost of Capital Investment /net Annual Cash Inflow

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    Precy Casero
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    The cash payback period for the proposed investment is 6 years, which does not meet the company's criteria of 5.6 years or less. However, the net present value is positive at $10,939.60. Therefore, while the investment does not meet the cash payback period requirement, it does meet the net present value criteria for acceptance. As such, Burns Corporation should still accept the proposed investment.

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    E12

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    The cash payback period for the proposed investment is 6 years, which does not meet the company's criteria of 5.6 years or less. However, the net present value is positive at $10,939.60. Therefore, while the investment does not meet the cash payback period requirement, it does meet the net present value criteria for acceptance. As such, Burns Corporation should still accept the proposed investment.

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    © All Rights Reserved
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    4 views1 page

    Cash Payback Period Cost of Capital Investment /net Annual Cash Inflow

    Uploaded by

    Precy Casero
    The cash payback period for the proposed investment is 6 years, which does not meet the company's criteria of 5.6 years or less. However, the net present value is positive at $10,939.60. Therefore, while the investment does not meet the cash payback period requirement, it does meet the net present value criteria for acceptance. As such, Burns Corporation should still accept the proposed investment.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    of 1

    E12-2

    a) Compute the cash payback period and net present value of the proposal investment.
    Cash payback period = Cost of capital investment /Net annual cash inflow
    = $48,000/$8,000
    =6 years
    PV at 8 %, 8 periods
    PV of Net annual cash flows
    (8,000 x 5.74664) $45,973.12
    PV of salvage value
    (24,000 x 0.54027) $12,966.48
    58,939.6
    Capital Investment $48,000.00
    Net Present Value $10,939.6

    b) Does the project meet the company's cash payback criteria? Does it meet the net present
    value criteria for acceptance?

    The project does not meet the company's cash payback criteria because the cash
    payback period must be 5.6 years and below. Since the net present value is positive
    eventhough it does not meet the company's cash payback criteria, Burns Corporation should
    still accept the proposed investment.

    E12-2
    c) Compute the cash payback period and net present value of the proposal investment.
    Cash payback period = Cost of capital investment /Net annual cash inflow
    = $48,000/$8,000
    =6 years
    PV at 8 %, 8 periods
    PV of Net annual cash flows
    (8,000 x 5.74664) $45,973.12
    PV of salvage value
    (24,000 x 0.54027) $12,966.48
    58,939.6
    Capital Investment $48,000.00
    Net Present Value $10,939.6

    d) Does the project meet the company's cash payback criteria? Does it meet the net present
    value criteria for acceptance?

    The project does not meet the company's cash payback criteria because the cash
    payback period must be 5.6 years and below. Since the net present value is positive
    eventhough it does not meet the company's cash payback criteria, Burns Corporation should
    still accept the proposed investment

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