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nignag [31]
2 years ago
9

P9-17 Comparing Investment Criteria [LO1, 2, 3, 5, 7] Consider the following two mutually exclusive projects: Year Cash Flow (A)

Cash Flow (B) 0 –$221,117 –$16,136 1 27,200 5,520 2 60,000 8,304 3 60,000 13,962 4 425,000 9,960 Whichever project you choose, if any, you require a 6 percent return on your investment. a. What is the payback period for Project A?
Mathematics
1 answer:
Rzqust [24]2 years ago
3 0

Answer:

3.17 YEARS

Step-by-step explanation:

Payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative cash flows

Payback period = Amount invested / cash flow

Payback period for option A, Product A  

Amount invested = –$221,117

Amount recovered in year 1 = –$221,117 + 27,200 = -193,917

Amount recovered in year 2 =  -193,917 + 60,000 = -133,917

Amount recovered in year 3 = -133,917 + 60,000 = -73,917

Amount recovered in year 4 =  -73,917 + 425,000 = 351,083

Payback period = 3 years + (73,917 / 425,000) = 3.17 years

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natita [175]

Answer:

  • $70,000 at 7%
  • $304,000 at 8%

Step-by-step explanation:

<u>Given</u>:

  Total interest earned on two investments is $29,220.

  An amount is invested at 7%.

  $24,000 more than 4 times that amount is invested at 8%.

<u>Find</u>:

  The amount invested at each rate.

<u>Solution</u>:

  Our strategy will be to define a variable representing the amount invested at 7%, use that variable to write an expression for the amount invested at 8%, then write an equation for the total return on the investments.

Let x represent the amount invested at 7%. Then (24,000+4x) will be the amount invested at 8%. The total interest earned will be ...

  interest on 7% account + interest on 8% account = total interest

  0.07x + 0.08(24000+4x) = 29220

  0.39x + 1920 = 29220 . . . . . . . . . . . simplify

  0.39x = 27300 . . . . . . . . . . . . . . . . . .subtract 1920

  x = 27300/0.39 = 70000 . . . . . . . . . divide by the coefficient of x

  24,000 +4x = 24,000 +280,000 = 304,000 . . . . amount invested at 8%

He invested $70,000 at 7% and $304,000 at 8%.

<u><em>Check</em></u>

The answer must satisfy ...

  7% interest + 8% interest = 29,220

  0.07×70,000 +0.08×304,000 = 4,900 +24,320 = 29,220 . . . . as required

_____

<em>Comment on 6-step method</em>

We have tried to hit the highlights. Your steps appear to be ...

  1. Identify the given information (Given)
  2. Identify the question you are asked to answer (Find)
  3. Identify the useless information in the problem statement (is none)
  4. Decide on a strategy. Make a model or drawing. (model equation shown)
  5. Solve and show work (Solution)
  6. Explain why the answer makes sense (Check)
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