Answer:
a. $20,000
b. -$2,950
c. -29.50%
Explanation:
The computation is shown below:
a. Gross Profit is
= Sale value of Property - Invested amount - Mortgage amount
= $120,000 - $10,000 - $90,000
= $20,000
b. Net Profit
= Gross profit - number of years × mortgage amount × rate of interest
= $20,000 - 3 × $90,000 × 8.5%
= -$2,950
And,
c) Rate of return is
= Net profit ÷ invested amount
= -$2,950 ÷ $10,000
= -29.50%
Southeastern Bell stocks a certain switch connector at its central warehouse for supplying field service offices. The yearly demand for these connectors is units. Southeastern estimates its annual holding cost for this item to be $ per unit. The cost to place and process an order from the supplier is $. The company operates days per year, and the lead time to receive an order from the supplier is working days. a) What is the economic order quantity? nothing units (round your response to the nearest whole number).
Answer:
A. Economic order quantity= 319
B. Annual holding costs= 3,669
C. Annual ordering costs= 3,669
D. 154
Explanation:
a) Calculation for the economic order quantity
Using this formula
Economic order quantity=√2*Demand*Cost order/Annual holding cost
Let plug in the formula
Economic order quantity=√2*15,400*76/23
Economic order quantity=√2,340,800/23
Economic order quantity=√101,774
Economic order quantity= 319
b) Calculation for annual holding costs
Using this formula
Annual holding costs=Economic order quantity/2*Annual holding cost
Let plug in the formula
Annual holding costs=319/2*23
Annual holding costs= 3,669
c) Calculation for the annual ordering costs
Using this formula
Annual ordering costs=Demand/Economic order quantity*Cost order
Let plug in the formula
Annual ordering costs=15,400/319*76
Annual ordering costs= 3,669
d) Calculation for reorder point
Using this formula
Reorder point=Demand/Numbers of days the company operate per year*Lead time
Let plug in the formula
Reorder point=15,400/300 days per year*3
Reorder point= 154
Accurate Metal Company sold 39,000 units of its product at a price of $390 per unit. Total variable cost per unit is $196, consisting of $187 in variable production cost and $9 in variable selling and administrative cost. Compute the manufacturing margin for the company under variable costing.
Answer:
Manufacturing margin = 7566000
Explanation:
given data
sold = 39,000 units
price = $390 per unit
Total variable cost = $196 per unit
variable production = $187
variable selling and administrative cost = $9
solution
first we get here the sales revenue that will be
sales revenue = 39000 × 390
sales revenue = 15210000
and
Cogs = 39000 × 196 = 7644000
so here Manufacturing margin will be
Manufacturing margin = 15210000 - 7644000
Manufacturing margin = 7566000
Bikes and More just announced its next annual dividend will be $2.42 a share and all future dividends will increase by 2.5 percent annually. What is the market rate of return if this stock is currently selling for $22 a share?
Answer:
13.5%
Explanation:
market rate of return can be calculated with below expresion
Current Price = D / (K - g)
Where
Current Price = $22 a share
D= Dividend in coming Year
dividend = $2.42
K= rate of return
g =growth rate
22 = 2.42 / (K - 0.025)
Cross multiply we have
22(K - 0.025)= 2.42
Open the bracket we have
22k- 0.55=2.42
2.42 + 0.55= 22k
K = 2.97 / 22
= 0.135
= 0.135×100%
= 13.5%
Therefore, the market rate of return if this stock is currently selling for $22 a share is 13.5
Consider a bank policy to maintain 12% of deposits as reserves. The bank currently has $10 million in deposits and holds $400,000 in excess reserves. What is the required reserve on a new deposit of $50,000?
Answer: $4,000
Explanation:
The required reserve and the excess reserve held by the bank are different because the required reserve is imposed by the central bank and the excess reserve is done by the bank.
The 12% reserves the bank is holding are both the excess and required reserves.
This means that the excess reserve is;
= 400,000/10,000,000
= 4%
The required reserve ratio will therefore be;
= 12% - 4 %
= 8%
Required reserve on $50,000 will be;
= 8% * 50,000
= $4,000
Suppose you come up with a wonderful new invention, and after borrowing as much as you can from a bank, you believe that additional capital is needed to make the invention marketable. Your small new company would be most likely to find additional capital from the:
A. bond credit channel.
B. equity credit channel.
C. stock credit channel.
D. venture capital credit channel.
Answer:
B. equity credit channel
Explanation:
Investment banks specialize in creating shares of stock for a company to raise funds through selling equity.
The credit channel mechanism of the monetary policy describes the theory that a central bank's policy changes, explained further.
What are Credit Channels?The credit channel mechanism of monetary policy reflects the hypothesis that changes in a central bank's policies impact the quantity of credit available to enterprises and consumers for purchases, hence affecting the real economy.
When someone comes up with new innovation and wants to sell it for as much money as possible by borrowing as much money as possible from a bank. The equity credit Channel is the most likely source of extra financing for your modest new organization.
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A perfectly competitive firm shuts down in the short run when:________. A. economic losses occur. B. the price is below the average total cost curve. C. the price is below the average variable cost curve. D. the price is below the average fixed cost curve.
Answer:
C. the price is below the average variable cost curve.
Explanation:
In a perfectly competitive market, there are many buyers and sellers (price takers) of homogeneous products (standardized products with substitute) and the market is free (practically open) to all individuals or business entities that are willing to trade all their goods and services.
Hence, a perfectly competitive market is characterized by the following features;
1. Perfect information.
2. No barriers, it is typically free.
3. Equilibrium price and quantity.
4. Many buyers and sellers.
5. Homogeneous products.
Some examples of a perfectly competitive market are the Agricultural sector, e-commerce and the foreign exchange market.
A perfectly competitive firm shuts down in the short run when the price it is selling its goods (products) in the market is below the average variable cost curve.
This ultimately implies that, a business firm should only continue to be in operation when its price is above or greater than its average variable costs based on the shutdown rule.
Which of the following are frequently mentioned goals of the Federal Reserve? Check all that apply.
Answer:
Stability in the financial system
– Price stability—fighting inflation
– Full employment
– Economic growth
– Interest rate stability
– Currency stability
Here are incomplete financial statements for Donavan, Inc. Calculate the missing amounts.
DONAVAN, INC.
Balance Sheet
Assets
Cash
$ 14,100
Inventory
17,100
Buildings
37,900
Total assets
$69,100
Liabilities and Stockholders' Equity
Liabilities
Accounts payable
$ 5,200
Stockholders' Equity
Common stock
Entry field with correct answer
(a)
Retained earnings
Entry field with correct answer
(b)
Total liabilities and stockholders' equity
$69,100
DONAVAN, INC.
Income Statement
Revenues
$85,800
Cost of goods sold
Entry field with incorrect answer now contains modified data
(c)
Salaries and wages expense
10,400
Net Income
$
Entry field with incorrect answer now contains modified data
(d)
DONAVAN, INC.
Retained Earnings Statement
Beginning retained earnings
$19,100
Add: Net income
Entry field with incorrect answer now contains modified data
(e)
Less: Dividends
4,710
Ending retained earnings
$34,100
Answer and Explanation:
The computation of the missing amounts is shown below:
a. Common stock
= Total Liabilities and Stockholders' Equity - total liabilities - ending retained earnings
= $69,100 - $5,200 - $34,100
= $29,800
b. Retained earnings is $34,100
c. Cost of goods sold
= Revenues - salaries & wages expense - net income
= $85,800 - $10,400 - $19,710
= $55,690
Here net income would be
= Ending retained earnings + dividends - beginning retained earnings
= $34,100 + $4,710 - $19,100
= $19,710
d. Net income is $19,710
e. Net income is $19,710
A consumer is currently spending all of her available income on two goods: music CDs and DVDs.At her current consumption bundle she is spending twice as much on CDs as she is on DVDs.If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs,what is the price of a CD?
A) $4
B) $8
C) $12
D) $20
Answer:
D) $20
Explanation:
Calculation for the price of a CD
Since the Total income is 120 then let the Income spent on DVDs be x and let them income spent on CDs be 2*x
First step
x + 2*x = $120
3*x = $120
x=$120/3
x = $40
Second step
Let the Price of one CD be y
Hence,
2*y = $40
y = $40 / 2
y = $20
Therefore the price of a CD will be $20
The disagreements between Hamilton and Jefferson led to a revised Constitution. a reformed Congress. new cabinet members. new political parties.
Answer:
new politacal parties
Explanation:
im taking the test right now
Answer:
d
Explanation:
Ace Industries has current assets equal to $5 million. The company's current ratio is 2.0, and its quick ratio is 1.6. What is the firm's level of current liabilities? What is the firm's level of inventories?
Answer:
=1.25
Explanation:
Current ratio= current asset/ current liabilities
Current ratio= $5 million./ Current Liabilities
Cross multiply we have
But current ratio is 2.0
2= 5/ current liabilities
current liabilities= 5/2
=2.5million
Quick ratio= current Asset- inventory/current liabilities
1.5=( 5- inventory)/2.5
Cross multiply we have
1.5×2.5= ( 5- inventory)
3.75= ( 5- inventory)
inventory= 5-3.75
=1.25
Therefore, the firm's level of inventories is 1.25
A company purchased a computer system at a cost of $27,000. The estimated useful life is 6 years, and the estimated residual value is $8,000. Assuming the company uses the double-declining-balance method, what is the depreciation expense for the second year? (Do not round your intermediate calculations. Round your answer to the nearest whole dollar amount.) a) $8,250 b) $6.000 c) $9,000. d) $7.500
Answer:
$6,000
Explanation:
The calculation of depreciation expense for the second year 5s sh6wn below:-
Depreciation rate as per straight line method=100% ÷ 6
= 16.67% per year
Depreciation as per double decline balance = 2 × Depreciation rate as per straight line method × Beginning value of each period
Year Beginning value Depreciation Ending value
1 $27,000 $9,000 $18,000
(2 × 16.67% × $27,000) ($27,000 - $9,000)
2 $18,000 $6,000
(2 × 16.67% × $27,000)
Which of the following did Judge Parker NOT mention as one of the principles of ethics?
Answer:
Remain open-minded
Explanation:
Potash Corporation acquired the voting stock of Safestyle Company on January 1, 2019 for $50 million. Safestyle's book value at the time was $10 million, consisting of $2 million of capital stock and $8 million of retained earnings. The $40 million difference between fair and book value was attributed to goodwill. It is now December 31, 2020, the end of the accounting year and two years after the acquisition. Safestyle's January 1, 2020 retained earnings balance is $11 million, and it reports net income of $1.8 million for 2020. Safestyle declares no dividends and has no other comprehensive income. Goodwill from the acquisition was impaired by $1 million in 2019 and $500,000 in 2020. Potash uses the complete equity method to report its investment in Safestyle on its own books. Support What is the December 31, 2020 balance for Investment in Safestyle, reported on Potash's books?
A. $53,300,000
B. $52,000,000
C. $50,000,000
D. $54,800,000
Answer: A. $53,300,000
Explanation:
Year 2019 balance for Investment
= Cash + Net income - amortization
Net income = Beginning retained earnings 2020 - Beginning retained earnings 2019
= 11 - 8
= 3 million
Balance 2019 = 50 + 3 - 1
= $52 million
Year 2020 balance
= Opening balance + Net income - amortization
= 52 + 1.8 - 0.5
= $53.3 million
= $53,300,000
Puget Sound Divers is a company that provides diving services such as underwater ship repairs to clients in the Puget Sound area. The company’s planning budget for May appears below:
Puget Sound Divers
Planning Budget
For the Month Ended May 31
Budgeted diving-hours (q) 300
Revenue ($420.00q) $126,000
Expenses:
Wages and salaries ($11,100 + $124.00q) 48,300
Supplies ($3.00q) 900
Equipment rental ($2,100 + $22.00q) 8,700
Insurance ($4,000) 4,000
Miscellaneous ($520 + $1.42q) 946
Total expense 62,846
Net operating income $63,154
Required:
During May, the company’s actual activity was 290 diving-hours. Complete the flexible budget for that level of activity.
Answer:
$60,458
Explanation:
Calculation to Complete the flexible budget for that level of activity
FLEXIBLE BUDGET
Flexible Budget(290 driving hours)
Revenue 121,800
(290*420)
Expenses:
Wages and salaries 47,060
($11,100 +290*$124.00q)
Supplies 870
($3.00q*290)
Equipment rental 8,480
($2,100 +290* $22.00q)
Insurance 4,000 (Fixed)
Miscellaneous 932
($520 + 290*$1.42q)
Total expense 61,342
Net operating income $60,458
(121,800-61,342)
Therefore the Flexible-budget Net operating income will be $60,458
Suppose you want to predict sneaker sales on the basis of advertising expenditures and sneaker color, red or blue. You create one dummy variable for the sneaker color (Red = 1 for red sneakers and Red = 0 for blue sneakers) and run the regression on data collected over ten years using the dummy variable and advertising expenditures as your independent variables.
The equation you obtain is:
Sales = 631,085 + 533,024(Red) + 50.5(Advertising)
a. How would you interpret the regression model?
b. How would you interpret the coefficient for red sneakers?
Answer:
a. This implies the sales of sneaker increase when the color of the sneaker is red and Advertising expenses increase.
This implies that the sneaker sales increases by $533,024 when the sneaker color is red.
Explanation:
a. How would you interpret the regression model?
The estimated regression model given in the question is as follows:
Sales = 631,085 + 533,024(Red) + 50.5(Advertising) ................ (1)
From equation (1), Sales is the estimated dependent variables; 631,085 is the estimated constant; 533,024 is the estimated coefficient of the red color; and 50.5 is the estimated coefficient of the advertising expenditures
The interpretation of the above is that sneaker color and the advertising expenditures have positive effect on the sales of sneaker. This implies the sales of sneaker increase when the color of the sneaker is red and Advertising expenses increase.
b. How would you interpret the coefficient for red sneakers?
From equation (1) in part a above, the estimated coefficient of the sneaker color is 533,024.
Since the sign in front of it is positive, this implies that the sneaker sales increases by $533,024 when the sneaker color is red.
Regression equation are used to model the mathematical relationship between an independent and dependent variable. Hence, the interpretation of the model goes thus :
There is a positive relationship between the dependent variable(sales) and the independent variables (Red sneakers aan advertising) Sales realized on sneakers increases by $533,024 when sneaker color is Red.The coefficients of the independent variable gives information about the kind of association between the variables.
Positive Coefficient values indicate, positive association while negative Coefficient depicts negative relationship.
The values of the coefficient also denotes the numerical change experienced by the dependent variable as changes is being made to the independent variable.
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Shawn goes to the library to pick up a copy of a common tax form used file taxes. Which of the following is MOST likely the form that Shawn got?
1099
W-2
1776
1040
Answer:
Shawn would choose form 1040 filing tax form.
Explanation:
The answer is D.) 1040
I got a picture of the answer.
Hope this helps!
On October 1, 20XX, Bartley Corporation issued 5%, 10-year bonds with a face value of $500,000 at $520,000. The entry to record the issuance of the bonds would include a:___________
a) credit of $20,000 to Premium on Bonds Payable
b) credit of $520,000 to Bonds Payable
c) debit of $20,000 to Discount on Bonds Payable
d) credit of $480,000 to Bonds Payable
Answer:
b) credit of $520,000 to Bonds Payable
Explanation:
Date Accounts titles and explanation Debit Credit
Oct. 1 Cash $520,000
Premium on bonds payable $20,000
Bonds payable $500,000
(To record the issuance of bond at premium)
Oakland Tax Planning Service bought computer equipment for on January 1, 2018. It has an estimated useful life of four years and zero residual value. Oakland uses the straightline method to calculate depreciation and records depreciation expense in the books at the end of each month. Calculate the amount of Depreciation Expense for the period, January 1, 2018 through September 30, 2018, for this equipment. (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)
A. $6,000
B. $6,500
C. $4,500
D. $5,000
Answer:
C. $4,500
Explanation:
The computation of the depreciation expense using the straight-line method is shown below:
= (Cost - residual value) ÷ Useful life of the asset
= $24,000 ÷ 48 months
= $500
Now for 9 months, it is
= $500 × 9 months
= $4,500
Hence, the depreciation expense is $4,500
Therefore the correct option is c. $4,500
Manufacturing cost data for Orlando Company, which uses a job order cost system, are presented below.
Direct materials used $ (a) $ 83,000 $ 63,150
Direct labor 50,000 140,000 (h)
Manufacturing overhead applied 42,500 (d) (i)
Total manufacturing costs 145,650 (e) 213,000
Work in process 1/1/14 (b) 15,500 18,000
Total cost of work in process 201,500 (f) (j)
Work in process 12/31/14 (c) 11,800 (k)
Cost of goods manufactured 192,300 (g) 222,000
Case A Case B Case C
Answer:
Instructions. Indicate the missing amount for each letter. Assume that in all cases manufacturing overhead is applied on the basis of direct labor cost and the rate is the same.
The Calculation of missing figure.
Particulars Case A Case B Case C
Direct materials used $53,150 $83,000 $63,150
Direct labor $50,000 $140,000 $81000
Manufacturing overhead applied $42,500 $119000 $68850
Total manufacturing costs $145,650 $342,000 $213,000
Work in process 1/1/14 $55,850 $15,500 $18,000
Total cost of work in process $201,500 $357,500 $231,000
Work in process 12/31/14 $9,200 $11,800 $11000
Cost of goods manufactured $192,300 $345,700 $222,000
PLS HURRY!!!!
Write a short paragraph explaining the ecological benefits to high-yield agricultural techniques.
Answer:
The results suggest that more intensive production methods require less land, cause less soil loss, consume less water and may result in the production of fewer pollutants. Contrary to common belief, results from the study show that organic production is more ecologically damaging than conventional methods.
Explanation:
O'Brien Inc. has the following data: rRF = 5.00%; RPM = 6.00%; and b = 1.10. What is the firm's cost of equity from retained earnings based on the CAPM?
a. 8.93%
b. 11.25%
c. 13.22%
d. 11.83%
e. 11.60%
Answer:
11.3%
Explanation:
O'Brien has the following data
rRF= 5%
RPM= 6%
b= 1.10%
Therefore the cost of equity can be calculated as follows.
= 5% + 6%(1.05)
= 5% + 6.3
= 11.3%
Hence the cost of equity is 11.3%
On January 1, 20X8, Blake Company acquired all of Frost Corporation's voting shares for $280,000 cash. On December 31, 20X9, Frost owed Blake $5,000 for services provided during the year. When consolidated financial statements are prepared for 20X9, which entry is needed to eliminate intercompany receivables and payables in the consolidation worksheet?
A) Accounts Payable 5,000
Accounts Receivable 5,000
B) Accounts Receivable 5,000
Accounts Payable 5,000
C) Retained Earnings 5,000
Answer:
A) Accounts Payable 5,000 ; Accounts Receivable 5,000
Explanation:
The amount owed as accounts payable (i.e liabilities) would be reduced with the amount of account receivables(assets) i.e. the assets would decrease giving a credit and liabilities would decrease giving a debit.
Ingram Electric Products is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative), in which case it will be rejected.
WACC: 11.00%
Year 0 1 2 3
Cash flows -$800 $350 $350 $350
Answer:
the project's MIRR is 13.50 %.
Explanation:
MODIFIED INTERNAL RATE OF RETURN (MIRR)
-It is the rate that causes the Present Value of the Terminal Value (Future Cash flows at the end of the Project) to equal Present Value of Cash outflows.
-MIRR assumes a reinvestment rate at the end of the project
The First Step is to Calculate the Terminal Value at end of year 3.
Terminal Value (FV) = Sum of (PV x (1 + r) ^ 3 - n)
= $350 x (1.11) ^ 2 + $350 x (1.11) ^ 1 + $350 x (1.11) ^ 0
= $431.24 + $388.50 + $350.00
= $1,169.74
The Next Step is to Calculate the MIRR using a Financial Calculator :
(-$800) CFj
0 CFj
0 CFj
$1,169.74 CFj
Shift IRR/Yr 113.50 %
Therefore, the MIRR is 13.50 %
What will happen to the market value of a bond if interest rates decrease?
a. The market value will decrease
b. The market value will increase
c. The market value will increase or decrease, depending on the general economic climate
d. The market value should remain level
Answer:
b. The market value will increase
Explanation:
In the case when the rate of the interest decrease so the market value of the bond would be increased. As the market value of the bond and the rate of interest has an inverse relationship between them. In the case when the rate of interest increased than the market value of the bond decreased and vice versa
Therefore option b is correct
An annuity pays $500 every six months for 5 years. The annual rate of interest is 8% convertible semiannually. Find each of the following: (a) The PV of the annuity six months (one period) before the first payment, (b) the PV of the annuity on the day of the first payment, (c) the FV of the annuity on the day of the last payment, (d) and the FV of the annuity six months after the last payment.
Answer:
(a) The PV of the annuity six months (one period) before the first payment,
PV ordinary annuity = $500 x 8.1109 (PV annuity factor, 10 periods, 4%) = $4,055.45
(b) the PV of the annuity on the day of the first payment,
PV annuity due = $500 x 8.43533 (PV annuity due factor, 10 periods, 4%) = $4,217.67
(c) the FV of the annuity on the day of the last payment,
FV = $500 x 12.00611 (FV annuity factor, 4%, 10 periods) = $6,003.06
(d) and the FV of the annuity six months after the last payment.
FV = $6,003.06 x (1 + 4%) = $6,243.18
Jaguar-Land Rover and Chery's partnership can be described as a:_______.a. joint venture.b. exporting.c. license.d. franchise.
Answer:
.a. joint venture.
Explanation:
joint venture can be regarded as a kind of strategic alliances of business arrangement whereby there is an agreement by two parties to gather their resources ( money ,time, asset)together to achieve a goal, this could be a business activities, engaging in projects and do on. In this case Jaguar-Land Rover and Chery's partnership can be described as joint venture because they are different parties that comes together with their resources.
Jaguar-Land Rover and Chery's partnership can be described as a Joint venture. The correct option is a.
Chery Jaguar Land Rover (formally Chery Jaguar Land Rover Automotive Company Ltd.) is a Chinese automaker headquartered in Changshu.
It was created as a 50:50 joint venture between UK-based Jaguar Land Rover, a subsidiary of Tata Motors of India, and Chinese state-owned carmaker Chery to allow the manufacturing of Jaguar Cars and Land Rover vehicles in China's mainland. Chery Jaguar Land Rover's initial assembly plant is located in Changshu, and manufacturing began in October 2014. In August 2010, it was announced that Chery and Jaguar Land Rover were in talks about forming a Chinese joint venture manufacturing firm.
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The market demand function for corn is Qd = 5 15 - 2P and the market supply function is Qs= 5P- 6, both quantities measured in billions of bushels per year. Suppose the government wants to raise the price to $4 per bushel. What are the aggregate surplus, consumer surplus, and producer surplus at the competitive equilibrium?
Answer:
The Producer surplus = 19.6.
consumer surplus = 12.25.
Aggregate supply = 31.85.
Explanation:
Normally, the demand equilibrium function equals to supply equilibrium function will get us the price which is $3 that is Qd = Qs. Hence, if we equate both function together like;
15 - 2P = 5P - 6.
15 +6 = 5P + 2P.
21 = 7P.
P = $3.
Thus, Qd = 15 - 2P= 15 - 2(3) = 15 - 6 = 9 units.
Qs = 5P - 6 = 5(3) - 6 = 15 - 6 = 9.
Therefore, if the price is going to be Increased by $4, we will have that;
Qd = 15 - 2P= 15 - 2(4) = 15 - 8 = 7 units.
=> The Producer surplus = 1/2 × 14 (4 - 1.2) = 19.6.
=> consumer surplus = 1/2 × 7 (7.5 - 4) = 12.25.
Aggregate supply = Producer surplus + consumer surplus = 19.6 + 12.25 = 31.85.
Monroe manufacturing has a quick ratio of 2.00x $31,000 in cash $17,500 in accounts recivable some inventory total current assets of $70,000 and total current liabilities of $24,500 the company reported annaul sales of $400,000 in the most recent annual reportOver the past year how often did Monroe manufacturing sell and replace its inventory?A) 19.05 xB) 20.96 xC) 2.86 xD) 8.01 x
Answer:
Inventory turnover ratio = 19.05 times
Explanation:
Quick ratio = (Current assets - Inventory) / Current liabilities
2 = (70,000 - Inventory) / 24,500
Inventory = $21,000
Inventory turnover ratio = Total sales / Inventory
Inventory turnover ratio = 400,000 / 21,000
Inventory turnover ratio = 19.05 times
A project has an initial cost of $10,600 and produces cash inflows of $3,700,$4,900,and $2,500 for Years 1 to 3,respectively.What is the discounted payback period if the required rate of return is 7.5 percent?
A) 2.65 years
B) 2.78 years
C) 2.94 years
D) 2.88 years
E) Never
Answer:
The project will never pay the initial investment.
Explanation:
The payback period is the time required to cover the initial investment.
We need to use the following formula on each cash flow:
PV= Cf/(1+i)^n
PV1= 3,700/1.075= 3,441.86
PV2= 4,900/1.075^2= 4,240.13
PV3= 2,500/1.075^3= 2,012.40
Now, the payback period:
Year 1= 3,441.86 - 10,600= -7,158.14
Year 2= 4,240.13 - 7,158.14= -2,918
Year 3= 2,010.4 - 2,918= -907.6
The project will never pay the initial investment.