1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Goryan [66]
3 years ago
15

Just because a​ project's payback period is relatively long​ doesn't mean it is not profitable in the long run. Consider an inve

stment in LED lights with a price tag of ​$225 comma 000. The estimated annual savings in electricity and routine maintenance is ​$40 comma 700 and the life of the LED lights is 15 years. Assume that the payback period of three years or less is desired by the investor. a. What is the simple payback period for the​ lights? b. What is the IRR of this​ investment? c. What do you conclude from Part ​(a) and Part ​(b)​?
Business
2 answers:
8_murik_8 [283]3 years ago
7 0

Answer:

(a)   investment in LED=$225,000

       Annual savings in electricity and routine maintenance =​$40,700

<em>Simple Payback Period </em>=<u>Investment Outlay </u>=  <u>$225,000 </u> =5.528 years

                                              Annual Savings       $40,700

(b)  <em>The IRR of this​ investment=    </em><em><u>rα+ NPVα    (rβ-rα)</u></em>

<em>                                                           (NPVα-NPVβ)</em>

<em>Where  IRR is Internal Rate of Return</em>

<em>              NPV  stand for Net Present Value</em>

<em>              rα=Lower discount rate chosen</em>

<em>             rβ= Higher discount rate chosen</em>

<em>            NPVα= NPV at rα</em>

<em>             NPVβ= NPV at  Rβ</em>

<em> DCF stands for Discount Factor.</em>

<em>Calculation of NPVα & NPVβ</em>

<u><em>Year          $              [email protected]%   PV               [email protected]%                PV</em></u>

0          (225,000)        1             (225,000)          1                      (225,000)    

1-15          40,700        4.1772         <u>170,014    </u>       8.1371             <u>331,178.41</u>

                                                      <em><u>  (54,986)   </u></em><u>  </u>                            <em><u>106,178.41</u></em>

<em><u /></em>

rα=10% ; rβ=15% ; NPVα= (54,986); NPVβ=106,178.41

IRR=10%+<u> (54,986) (15%-10%) </u>          =0.1+ (0.3412)(0.5)=0.2705=27.05%  

                   (54,986)-106,178.41

<em>IRR=27.05% </em>

<em>(c) Conclusions:</em>

Part ​(a): The payback calculated above is 5 years and 6 months. This did not meet payback period of three years or less desirable by the investor.

Part ​(b)​: IRR of 27.05% should be compared with the firm cost of capital. If firm cost of capital is lower than 27.05%, the project should be accepted otherwise, it should rejected.                                              

<em></em>

Explanation:

<em>Payback period</em> means the time required to get back money spent on an investment through annual savings or cash inflow.

<em>Internal Rate of Return (IRR)</em> refers to the interest rate at which the net present value of all the cash flows from an investment equal zero.

hichkok12 [17]3 years ago
6 0

<u>Solution: </u>

a. Since annual net revenue increase is equivalent i.e. any duration of the same cash flow), the plan payback period can be determined with the following formula:

\bold{Payback \ period = \frac{Investment \ required}{Net \ annual \ cash \ inflow}}

\Rightarrow \frac{\$225,000}{\$40,700}

\Rightarrow 5.5 years

The simple payback period for the lights is 5.5years

b. See the inner Return Factor value (5.5) for the current Return Factor of 15 years for \$1 panel. After this factor has been located see the corresponding Rate of Interest, It is 16\%.

c. The conclusion is both Part (a) and Part (b).

You might be interested in
Jackson Company had a net increase in cash from operating activities of $10,000 and a net decrease in cash from financing activi
zmey [24]

Answer:

A. an outflow or decrease of $1,000.

Explanation:

Ending balance of cash = Opening balance of cash + Net cash flow of the period

Ending balance of cash = Opening balance of cash + ( Cash flow from operating activities + cash flow from investing activities + cash flow from financing activities )

$11,000 = $4,000 + $10,000 + cash flow from investing activities - $2,000

$11,000 = $12,000 + cash flow from investing activities

Cash flow from investing activities = $11,000 - $12,000

Cash flow from investing activities = -$1,000

7 0
3 years ago
5. A firm currently produces its desired level of output. Its marginal product of labor is 400, its marginal product of capital
gizmo_the_mogwai [7]

Answer:

D.

Explanation:

Firms will hire more labor when the marginal revenue product of labor is greater than the wage rate, and stop hiring as soon as the two values are equal.

7 0
3 years ago
Park Ridge Company is considering the replacement of a machine that is presently used in production. The following data are avai
Ainat [17]

Answer:

The Relevant Cost for Five Years     $52,000.00

Explanation:

‘Relevant costs’ can be defined as any cost relevant to a decision. A matter is relevant if there is a change in cash flow that is caused by the decision.

The Park Ridge Company's Relevant Old Machine Cost for Five Years is

Disposal value now                      $32,000.00  

Annual cash operating costs      $20,000.00

Relevant Cost for Five Years     $52,000.00

Old Machine

Original cost $200,000 is <em>Sunk Cost</em>

Useful life in years 10 5   - <em>Will be used for the calculation of Depreciation, Therefore is an Irrelevant cost</em>

Current age in years 5 0  - <em>irrelevant year</em>

Book value $100,000 -  <em>are not cash flows and so are not relevant. </em>

Disposal value now $32,000 -  

Disposal value in 5 years 0 <em>is without a cost</em>

4 0
3 years ago
Which is TRUE regarding the trade-off a firm makes when it spends money on an investment project? A. The trade-off a firm faces
luda_lava [24]

Answer:

A. The trade-off a firm faces when using retained earnings or borrowed funds is the same.

Explanation:

  • A trade-off is based on the situational decisions that usually involve the loss of quality and a property that is set or designed to give a return in the other aspects.
  • As one part has to increase and the other has to decrease. The trade-off is commonly expressed as in the terms of opportunity costs which states the loss of the best alternative.
3 0
3 years ago
Lopez Plastics Co. (LPC) issued callable bonds on January 1, 2021. LPC's accountant has projected the following amortization sch
Kobotan [32]

Answer:

c. 7%

Explanation:

According to the given scenario, the computation of the annual stated interest rate on the bonds is shown below:-

Sated interest Rate = Cash interest ÷ Face Value of the bond × 2

= $7,000÷ $200,000 × 2

= 7%

Therefore for computing the annual stated interest rate on the bonds we simply applied the above formula. hence the correct option is c

6 0
3 years ago
Other questions:
  • Clients and interviewers may use __________ to highlight the important issues in their statements. a. verbal underlining, topic
    13·1 answer
  • Suppose Orange Inc. sells MP3 players and initially has monopoly power because there are only a few close substitutes available
    8·1 answer
  • Which type of rubric contains a rating scale?
    15·2 answers
  • If you use a credit card what are you creating
    7·1 answer
  • Interest rates are expressed as a percentage of
    14·2 answers
  • Point-of-purchase displays in grocery stores, coupons, premiums, and trial-size packages are most useful when the consumer is ne
    14·1 answer
  • In what order would you perform the following steps in order to change the color of text in a document?
    8·1 answer
  • How LinkedIn’s weekly invite limits are affecting marketers?
    15·1 answer
  • Shalimar Company manufactures and sells industrial products. For next year, Shalimar has budgeted the following sales:
    12·1 answer
  • True or False: To do business in less developed nations, firms often adjust products or prices to make their offerings more affo
    14·2 answers
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!