Answer:
Slapshot Company
The total production is $98,000 with a unit cost of $49 per hockey stick.
The selling price per unit should be above $49 when marked-up.
Explanation:
a) Data and Calculations:
Direct materials (wood, paint, Kevlar, and resin) $26,000
Direct labor (10 workers x 100 hours x $20 per hour) 20,000
Manufacturing overhead equaled 52,000
Total production costs = $98,000
Production of hockey stick = 2,000 units
Unit cost of hockey stick = $49 ($98,000/2,000)
Mia and Mario specialize in producing the item in which she or he has a comparative advantage. Then they trade one pasta dish for one pizza.. Before specialization and trade, Mia and Mario produce 4 dishes of pasta and 4 pizzas an hour each. What are the total gains from specialization and trade?
Answer:
4, 4
Explanation:
Now mia has comparative advantage in pasta production while Mario has advantage in pizza making
Before they both specialized, one was making 4 pizza and 4 pasta while the other made 4 pasta and 4 pizza.
Total pizza made = 8
Total pasta made = 8
After they specialized,
Maria makes 4 + 8 = 12 pizza
Mia makes 4+8 = 12 pizza
12-8= 4
So they both make 4 more pasta and 4 more pizza
To determine why a company is more profitable than others in the same industry, a strategist should use: A. A VRIO Analysis B. A PESTLE Analysis C. A SWOT analysis D. A Porter's Five Forces analysis
Answer:
The answer is D
Explanation:
Option D is correct. Porter's five forces analysis is used to determine the intensity of competition in an industry.
This intensity determines how profitable firms in the industry will be.
The five forces are:
1. Bargaining power of consumers
2. Bargaining power of producers.
3. Threat of new entrants - this is the new competition coming into the industry
4. Threat of substitute goods.
5. Competitive rivalry.
Consider the future value of $1 in 10 periods when the interest rate is 5%. When the interest rate doubles to 10%, the future value: Increases but by less than double Exactly doubles Increases by more than double Cannot be determined a
Answer: Increases but by less than double
Explanation:
The formula for future value will be calculated as:
FV = PV (1 + r )^n
When interest rate = 5%, then the future value will be:
= 1 × (1 + 5%)^10
= 1 × (1 + 0.05)^10
= 1 × (1.05)^10
= 1.63
When Interest rate is 10%, then the future value will be:
= 1 × (1 + 10%)^10
= 1 × (1 + 0.10)^10
= 1 × (1.10)^10
= 2.59
Therefore, the answer is "Increases but by less than double"
Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends have been growing at a rate of 36.0%, and the current dividend yield is 8.00%. Its beta is 1.32, the market risk premium is 14.00%, and the risk-free rate is 2.80%.
Required:
a. Use the CAPM to estimate the firm’s cost of equity. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
b. Now use the constant growth model to estimate the cost of equity. (Do not round intermediate calculations. Enter your answer as a whole percent.)
c. Which of the two estimates is more reasonable?
Answer:
a. Calculation of the firm's cost of equity using CAPM
Required rate of return (Cost of equity) = Risk free rate + Beta*Market risk premium
Cost of equity = 2.80% + 1.32*14%
Cost of equity = 2.80% + 18.38%
Cost of equity = 21.28%
b) Calculation of the cost of equity using constant growth model:
Cost of equity = Dividend yield + Growth rate(Capital gain yield)
Cost of equity = 8.00% + 36.00%
Cost of equity = 44.00%
Lindon Company is the exclusive distributor for an automotive product that sells for $54.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $388,800 per year. The company plans to sell 28,600 units this year. Required: 1. What are the variable expenses per unit? (Round your "per unit" answer to 2 decimal places.) 2. What is the break-even point in unit sales and in dollar sales? 3. What amount of unit sales and dollar sales is required to attain a target profit of $226,800 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $5.40 per unit. What is the company’s new break-even point in unit sales and in dollar sales? What dollar sales is required to attain a target profit of $226,800?
Answer:
Results are below.
Explanation:
First, we need to calculate the unitary variable cost:
Unitary variable cost= (1 - Contribution margin ratio)*selling price
Unitary variable cost= 0.70*54
Unitary variable cost= $37.8
Now, the break-even point in units and dollars:
Break-even point in units= fixed costs/ contribution margin per unit
Break-even point in units= 388,800 / (54 - 37.8)
Break-even point in units= 24,000
Break-even point (dollars)= fixed costs/ contribution margin ratio
Break-even point (dollars)= 388,800 / 0.3
Break-even point (dollars)= $1,296,000
If the desired profit is $226,800; the following formula is required:
Break-even point in units= (fixed costs + desired profit) / contribution margin per unit
Break-even point in units= (338,800 + 226,800) / 16.2
Break-even point in units= 34,914
Break-even point (dollars)= (fixed costs + desired profit) / contribution margin ratio
Break-even point (dollars)= 565,600 / 0.3
Break-even point (dollars)= $1,885,333
Finally, if the variable cost per unit decreases by $5.4:
Unitary variable cost= $32.4
Break-even point in units= 388,800 / (54 - 32.4)
Break-even point in units= 18,000
Contribution margin ratio= unitary CM / Selling price
Contribution margin ratio= 21.6/54= 0.4
Break-even point (dollars)= fixed costs/ contribution margin ratio
Break-even point (dollars)= 388,800 / 0.4
Break-even point (dollars)= 972,000
Break-even point (dollars)= (fixed costs + desired profit) / contribution margin ratio
Break-even point (dollars)= (388,800 + 226,800) / 0.4
Break-even point (dollars)= $1,539,000
Which of the following is NOT an accurate statement about business processes in the context of implementing supply chain management?
A. Logistics are one of front-end practices that drive entire business practices.
B. Front-end business processes refer to the practices related to customers-product development-suppliers.
C. Key aspects of strategic management include leadership and (organizational) cultures.
D. Infrastructure support includes IT, knowledge/innovation management)
E. Complex performance measures are related to customers and supply chain management
Answer:
B. Front-end business processes refer to the practices related to customers-product development-suppliers.
Explanation:
The above given statement is NOT an accurate statement about business processes in the context of implementing supply chain management.
How could a strategy plan be used by a local restaurant chain
Explanation:
A strategic plan for a restaurant should involve decisions regarding advertising and how customers view the restaurant from the outside. Your advertising strategy should address your customers in a way that is geared toward your primary demographic.
Bono was kicked out of the band U2 for failing to attend rehearsals on time and constantly cutting the strings of Adam Clayton bass guitar. For the purposes of this question Bono was an employee of U2 which is an American company. Bono applies for unemployment insurance. Provided that he is actively attending auditions to display his willingness and ability to seek future employment he will receive state administered unemployment benefits.
A. True
B. False
Answer:
B
Explanation:
He was fired for constantly missing rehearsals which is a duty of his role as an employee of U2
He was fired for constantly missing rehearsals which is a duty of his role as an employee of U2. As the Bono is fired because of his continuous mistakes, and he is not liable to get the unemployment insurance.
What is unemployment insurance?Unemployment insurance benefits are offered by the U.S. Federal Government to enrollees who become jobless absolutely no fault of their own and fulfill some other rules.
Unemployment insurance is a state-federal program that pays financial compensation to workers who are unemployed.
Thus, option B is correct.
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Feedback is a form of:
a. advertising.
b. complaining.
c. resolving concerns.
d. coaching.
Answer:
C. resolving concerns
hope this helps
have a good day :)
Explanation:
During the Middle Ages, the African city of Taghaza quarried salt in 200-pound blocks to be sent to the salt market in Timbuktu, in present-day Mali. Travelers report that Taghazans used salt instead of wood to construct buildings. How would the elasticity of demand for wood in Taghaza have compared with the elasticity of demand for wood in other towns without big salt mines
Answer:
a. it would have been more elastic.
Explanation:
how to calculate current ratios
Answer:
Current ratios = [tex]\frac{Current Assets}{Current Liabilities}[/tex]
The prepaid insurance account had a beginning balance of $7,560 and was debited for $810 for premiums paid during the year.
Required:
Journalize the adjusting entry required at the end of the year.
Answer: See explanation
Explanation:
Debit Insurance Expenses = $8370
Credit Prepaid insurance = $8370
(To record insurance expense for the current year)
Note that:
Opening prepaid Insurance = $7560
Add: Insurance premium = $810
Insurance expense = $8370
Two alternatives for a construction project are being considered. Both projects have a 5-year life. Alternative A's initial cost is $2,260 and yields $355 annually for 5 years. Alternative B initially costs $5500 and yields $1,250 annually for 5 years. The rate of return on the difference between the alternatives is approximately
Answer:
The rate of return on the difference between the alternatives is approximately 38.12%.
Explanation:
Alternative A's initial cost = $2,260
Alternative A's total yields for 5 years = $355 * 5 = $1,775
Alternative B's initial cost = $5,500
Alternative B's total yields for 5 years = $1,250 * 5 = $6,250
Difference between initial costs of A and B = Alternative B's initial cost - Alternative B's initial cost = $5,500 - $2,260 = $3,240
Difference between total yields for 5 years of A and B = Alternative B's total yields for 5 years - Alternative A's total yields for 5 years = $6,250 - $1,775 = $4,475
Rate of return on the difference between the alternatives = (Difference between total yields for 5 years of A and B - Difference between initial costs of A and B) / Difference between initial costs of A and B = ($4,475 - $3,240) / $3,240 = 0.3812, or 38.12%
Therefore, the rate of return on the difference between the alternatives is approximately 38.12%.
Equipment acquired on January 8 at a cost of $168,000 has an estimated useful life of 18 years,
has an estimated residual value of $15,000, and is depreciated by the straight-line method.
A. What was the book value of the equipment at December 31 the end of the fourth year?
B. Assuming that the equipment was sold on April 1 of the fifth year for $125,000, journalize
the entries to record (1) depreciation for the three months until the sale date, and (2) the
sale of the equipment.
Answer:
A. $134,000
B1. Dr Depreciation expense $2,125
Cr Accumulated depreciation- equipment $2,125
B2. Dr Cash $125,000
Dr Loss on sale of equipment $6,875
Dr Accumulated depreciation- equipment $36,125
Cr Equipment $168,000
Explanation:
A. Calculation to determine What was the book value of the equipment at December 31 the end of the fourth year
First step is to calculate the Annual depreciation using this formula
Annual depreciation = (Cost of machinery-Residual value)/ useful life
Let plug in the formula
Annual depreciation= (168,000-15,000)/18
Annual depreciation= $8,500
Second step is to calculate the Accumulated depreciation for 4 years using this formula
Accumulated depreciation for 4 years = Annual depreciation x 4
Let plug in the formula
Accumulated depreciation for 4 years= 8,500 x 4
Accumulated depreciation for 4 years= $34,000
Now let determine the Book value of equipment at December 31 at the end of year
Using this formula
Book value of equipment at December 31 at the end of year 4 = Cost of equipment - Accumulated depreciation for 4 years
Let plug in the formula
Book value of equipment at December 31 at the end of year = 168,000-34,000
Book value of equipment at December 31 at the end of year = $134,000
Therefore the book value of the equipment at December 31 the end of the fourth year is $134,000
B1. Preparation of the journal entries to record (1) depreciation for the three months until the sale date
Year 5, April 1
Dr Depreciation expense $2,125
Cr Accumulated depreciation- equipment $2,125
( To record depreciation expense)
Calculation for Depreciation for 3 months of year 5 using this formula
Depreciation for 3 months of year 5 = Annual depreciation x 3/12
Let plug in the formula
Depreciation for 3 months of year 5 == 8,500 x 3/12
Depreciation for 3 months of year 5 = $2,125
B2.Preparation of the journal entries to record (2) the sale of the equipment.
Year 5, April 1
Dr Cash $125,000
Dr Loss on sale of equipment $6,875
Dr Accumulated depreciation- equipment $36,125
Cr Equipment $168,000
( To record sale of the equipment)
Calculation for Accumulated depreciation at April 1, year 5 using this formula
Accumulated depreciation at April 1, year 5 = Accumulated depreciation for 4 years + Depreciation for 3 months of year 5
Let plug in the formula
Accumulated depreciation at April 1, year 5= 34,000+2,125
Accumulated depreciation at April 1, year 5= $36,125
Calculation for Book value of equipment at April 1, year 5 using this formula
Book value of equipment at April 1, year 5 = Cost of equipment - Accumulated depreciation at April 1, year 5
Let plug in the formula
Book value of equipment at April 1, year 5 = $168,000-$36,125
Book value of equipment at April 1, year 5 = $131,875
Calculation for Loss on sale of equipment using this formula
Loss on sale of equipment = Book value - Sale of equipment
Let plug in the formula
Loss on sale of equipment=$ 131,875-$125,000
Loss on sale of equipment= $6,875
.
Assume that Guardian Company uses a periodic inventory system and has these account balances: Purchases $500,000; Purchase Returns and Allowances $14,000; Purchase Discounts $9,000; and Freight-in $15,000. Determine net purchases and cost of goods purchased.
Answer:
Net purchases:
= Purchases - Purchase Returns and Allowances - Purchase Discount
= 500,000 - 14,000 - 9,000
= $477,000
Cost of goods sold:
= Net purchase + Freight-in
= 477,000 + 15,000
= $492,000
Suppose that the price of a cupcake is $4. At this price, 50 cupcakes will be demanded. If the price rises to $5 per cupcake, consumer surplus will
Answer: fall by less than $50.
Explanation:
The options are:
• fall by more than $50.
• fall by less than $50.
• rise by less than $50.
• rise by more than $50.
Expert Answer
Consumer surplus, is referred to as the economic measure of the excess benefit that a customer gets. The consumer surplus is the difference between the amount that the customer is willing to pay and the amount that he or she eventually pays.
Based on the question, the total Price paid is: 50 × $4 = $200
Total Revised Price = 50 × $5 = $250
Therefore, there will be a fall by $50 that's ($250 - $200).
Which set of items appears on the loan estimate
Balmforth Products, Inc. makes and sells a single product called a Bik. It takes three yards of Material A to make one Bik. Budgeted production of Biks for the next five months is as follows: The company wants to maintain monthly ending inventories of Material A equal to 20% of the following month's production needs. On January 31, this target had not been attained since only 2,000 yards of Material A were on hand. The cost of Material A is $0.80 per yard. The company wants to prepare a Direct Materials Purchases Budget. The total needs (i.e., production requirements plus desired ending inventory) of Material A for the month of May are:
Answer:
46,500 yards
Explanation:
Calculation to determine the Total needs of Material A for the month of May
Using this formula
Total needs =Production requirement+Desired ending Inventory
Let plug in the formula
Total needs=12,600*3+($14,500*20%*3)
Total needs=37,800+8,700
Total needs=46,500 yards
Therefore the Total needs of Material A for the month of May is 46,500 yards.
Ana is training for a triathlon, a timed race that combines swimming, biking, and running. While Ana usually practices swimming for two hours per day, she decides to continue for an additional hour because the pool is less crowded than usual today allowing her practice time to be more productive. Which basic principle of individual choice does Valerie's plan illustrate that her husband's advice does not?
a. Resources are scarce.
b. All decisions involve opportunity costs.
c. Decisions are made at the margin.
d. People usually exploit opportunities to make themselves better off.
Answer:
c. Decisions are made at the margin.
Explanation:
It is better to make a trade-off when someone compares the costs with that of the benefits of doing something. The [tex]\text{decisions about whether one must do a bit more or a bit less of an activity}[/tex] are called marginal decisions. Making the [tex]\text{trade-offs at the margin}[/tex] means comparing its costs as well as its benefits of an activity by doing it a little bit more versus doing a little bit less.
In the context, Ana is making decision at the margin when she decides to practice one hour extra and improve her swimming performance as the event of triathlon is approaching.
Thus, option (d) is correct.
Prime Computers is a company that sells computers and software. The company has a website that allows customers to post comments about the computers and software it sells. Why is it important for this company to encourage customer feedback
Group of answer choices.
A. Most online shoppers will only buy products if they can voice their opinions about them after the purchase.
B. Most online shoppers search the Internet for ratings and reviews before making major purchase decisions.
C. Negative consumer feedback can actually attract more customer interest in the product.
D. Allowing consumer feedback makes it less likely that consumers will provide their feedback.
E. Consumers are more likely to say positive things about companies that value their opinions.
Answer:
B. Most online shoppers search the Internet for ratings and reviews before making major purchase decisions.
Explanation:
Customer relationship management can be defined as a strategic process which typically involves combining strategies, techniques, practices and technology so as to effectively and efficiently manage their customer data in order to improve and enhance customer satisfaction. Thus, this set of employees are saddled with the responsibility of ensuring the customer are satisfied and happy with their service at all times.
This ultimately implies that, customer relationship management is focused on developing an ongoing connection between a business firm (organization) and all of its customers, as well as potential customers.
Hence, it is very important for Prime Computers to encourage customer feedback on its website and as a policy because most online shoppers (customers) usually engage in an online search in order to see other customer's ratings and reviews of company's product or service before making major purchase decisions.
The net income reported on the income statement of Cutler Co. was $2,460,000. There were 50,000 shares of $18 par common stock and 20,000 shares of $5 preferred stock outstanding throughout the current year. The income statement included a gain on discontinued operations of $300,000 after applicable income tax.
a. Determine the per-share figure for common stock for income before discontinued operations. Round your answer to the nearest cent.
$ per share
b. Determine the per-share figure for common stock for net income. Round your answer to the nearest cent.
$ per share
Answer and Explanation:
The computation is shown below:
a. The earning per share is
= (PAT - income tax discontinued operations - Preference dividend) ÷ number of common stock
= ($2,460,000 - $300,000 - (20,000 × $5)) ÷ (50,000 shares)
= $41.2 per share
b. The earning per share is
= (PAT - Preference dividend) ÷ number of common stock
= ($2,460,000 - (20,000 × $5)) ÷ (50,000 shares)
= $47.2 per share
Given the following historical demand, what is the weighted moving average forecast (0.4, 0.3, 0.3) for Week 6?
Week 1 = 3000
Week 2 = 5000
Week 3 = 7000
Week 4 = 9000
Week 5 = 11000
Week 6 = Predict using the weighted moving average forecast (0.4, 0.3, 0.3)
Last Period Forecast: F = D
t+1 t
where Ft+1 = forecast for the next period, t+1 and Dt = demand for the current period, t
Moving Average Weighted Moving Average
Forecast Forecast
Ft+1 = nΣ i=1 Dt+1-i/n Ft+1 = nΣ i=1 Wt+1-i Dt+1-i
where Ft+1 = forecast for the next period, t+1 and Dt = actual demand for the period, t +1-i and n = number of most recent demand observations used in the forecast and Wt+1-i = weight assigned to the demand in period, t +1-i.
A. 7000.
B. 9200.
C. 9000.
D. 13000.
E. 8800.
Answer:
The correct option is B. 9200.
Explanation:
This can simply be answered as follows:
[tex]F_{6} =(D_{5}*W_{5})+(D_{4}*W_{4})+(D_{3}*W_{3})[/tex] .................. (1)
Where:
[tex]F_{6}[/tex] = Weighted moving average forecast (0.4, 0.3, 0.3) for Week 6 = ?
[tex]D_{5}[/tex] = Week 5 demand = 11,000
[tex]D_{4}[/tex] = Week 4 demand = 9,000
[tex]D_{3}[/tex] = Week 3 demand = 7,000
The (0.4, 0.3, 0.3) implies that:
[tex]W_{5}[/tex] = Weight of Week 5 demand = 0.4
[tex]W_{4}[/tex] = Weight of Week 4 demand = 0.3
[tex]W_{3}[/tex] = Weight of Week 3 demand = 0.3
Substituting all the relevant values into equation (1), we have:
[tex]F_{6}[/tex] = (11,000 * 0.40) + (9,000 * 0.30) + (7,000 * 0.30) = 9,200
Therefore, the correct option is B. 9200.
The weighted moving average forecast for week 6 is 9,200.
The calculation for determining the weighted moving average forecast for week 6 is= (Week 5 × 0.4) + (Week 4 × 0.3) + (Week 3 × 0.3)
= (11000 × 0.4) + (9000 × 0.3) + (7000 × 0.3)
= 9200
Therefore we can conclude that the weighted moving average forecast for week 6 is 9,200.
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Which of the following is NOT normally regarded as being a barrier to hostile takeovers? a. Targeted share repurchases. b. Shareholder rights provisions. c. Poison pills. d. Restricted voting rights. e. Abnormally high executive compensation.
Answer:e
Explanation:
A short-term financial decision based on an MNC management's expectation that the local foreign currency will appreciate may be
Answer:
increasing local accounts receivable and decreasing local accounts payable
Explanation:
In simple words, accounts receivables refers to the amount that the company will receive from its debtors and accounts payable is the amount that the company will pay to its creditors. Thus, if the local currency appreciates , the company will receive a higher amount but will be obligated to pay a lower amount.
Which of the three types of business is the shoe store?
Answer:
I think a shoe store would be considered a corporation, however it could be a sole proprietorship meaning the business is solely owned and taken care of by one person, but that's unlikely since a shoe store would need employees to maintain their store.
Explanation:
There are three categories of business which are the following:(1) sole proprietorship, (2) partnership, and (3) corporation. Within each category, there are several variations.
Hope I helped, have a nice day :)
How dose the very small businesses finance
Answer:
Small Business Administration offers lenders, mostly traditional banks, a federal guarantee on your loan
A company's perpetual preferred stock currently trades at $87.50 per share, and it pays an $8.00 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 5.00% of the issue price. What is the firm's cost of preferred stock?
a. 8.25%
b. 9.14%
c. 8.69%
d. 9.62%
Answer:
9.62%
Explanation:
The firm cost of preferred stock can be calculated as follows
Dividend= $8
Price= $87.50
Floation cost= 5%
= 5/100
= 0.05
= 8/87.50(1-0.05)
= 8/87.50(0.95)
= 8/83.125
= 0.0962×100
= 9.62%
Hence the firm cost of preferred stock is 9.62%
You’ve borrowed $21,518 on margin to buy shares in Ixnay, which is now selling at $40.6 per share. You invest 1,060 shares. Your account starts at the initial margin requirement of 50%. The maintenance margin is 35%. Two days later, the stock price changes to $38 per share. a. Will you receive a margin call?
Answer:
a. No, you will NOT receive a margin call.
b. The price at which you will receive the margin call is $31.23 per share.
Explanation:
Note: This question is not complete as the part b of the requirement is omitted. To complete the question, the omitted part b is therefore provided before answering the question as follows:
b. At what price will you receive the margin call?
The explanation of the answer is now provided as follows:
a. Will you receive a margin call?
Margin loan = $21,518
Total amount invested = Number shares purchased * Selling price per share when purchased = 1,060 * $40.60 = $43,036
Initial equity = Total amount invested - Margin loan = $43,036 - $21,518 = $21,518
Market value of the stock two days later = Number shares purchased * Selling price per share two days later = 1,060 * $38 = $40,280
New equity = Market value of the stock two days later - Margin loan = $40,280 - $21,518 = $18,762
Percentage margin = New equity / Market value of the stock two days later = $18,762 / $40,280 = 0.4658, or 46.58%
Since your percentage margin of 46.58% is lower than the new required maintenance margin of 35%, you will NOT receive a margin call.
b. At what price will you receive the margin call?
Price to receive the margin call = (Margin loan / (100% - Maintenance margin after two days)) / Number of shares purchased = ($21,518 / (100% - 35%)) / 1,060 = $31.23
Therefore, the price at which you will receive the margin call is $31.23 per share.
Your broker suggests that the stock of DUH is a good purchase at $25. You do an analysis of the firm, determining that the recent $1.40 dividend and earnings should continue to grow indefinitely at 5 percent annually. The firm's beta coefficient is 1.3, and the yield on Treasury bills is 1.4 percent. If you expect the market to earn a return of 8 percent, what is your valuation of DUH
Answer:
The correct answer is "$28.03".
Explanation:
The given values are:
Good purchase,
= $25
Dividend,
= $1.40
Annually earning,
= 5%
Beta coefficient,
= 1.3
Treasury bills,
= 1.4%
Now,
= [tex]1.4+1.34\times 8-1.4[/tex]
= [tex]1.34\times 8[/tex]
= [tex]10.244[/tex] (%)
hence,
The fair value will be:
= [tex]1.4\times \frac{1.05}{.10244}-.05[/tex]
= [tex]28.03[/tex]
Absolutely, the proposal including its brokerage must be adopted because as fair market value was almost $25.
If an asset costs $16,000, has an expected useful life of 8 years, is expected to have a $2,000 salvage value and generates net annual cash inflows of $2,000 a year, the cash payback period is:________
Answer:
It will take 7.5 years to cover the initial investment. If the company take into account the tax shield of the depreciation expense, the payback period will be lower.
Explanation:
Giving the following information:
Initial investment= $16,000
Useful life= 8 years
Salvage value= $2,000
Cash inflows= $2,000
The payback period is the time required to cover the initial investment.
Year 1= 2,000 - 16,000= -14,000
Year 2= 2,000 - 14,000= -12,000
Year 3= 2,000 - 12,000= -10,000
Year 4= 2,000 - 10,000= -8,000
Year 5= 2,000 - 8,000= -6,000
Year 6= 2,000 - 8,000= -4,000
Year 7= 2,000 - 4,000= -2,000
Year 8= 4,000 - 2,000= 2,000 (Assuming the asset is sold for its salvage value)
To be more accurate:
(2,000/4,000)= 0.5
It will take 7.5 years to cover the initial investment. If the company take into account the tax shield of the depreciation expense, the payback period will be lower.