Long-term investment decision, payback method Personal Finance Problem Bill Williams has the opportunity to invest in project A that costs $6,200 today and promises to pay $2,100, $2,500, $2,500, $2,000 and $1,700 over the next 5 years. Or, Bill can invest $6,200 in project B that promises to pay $1,600, $1,600, $1,600, $3,600 and $3,900 over the next 5 years. (Hint: For mixed stream cash inflows, calculate cumulative cash inflows on a year-to-year basis until the initial investment is recovered.) a. How long will it take for Bill to recoup his initial investment in project A? b. How long will it take for Bill to recoup his initial investment in project B? c. Using the payback period, which project should Bill choose? d. Do you see any problems with his choice?

Long-term investment decision, payback method Personal Finance Problem Bill Williams has the opportunity to invest in project A that costs $6,200 today and promises to pay $2,100, $2,500, $2,500, $2,000 and $1,700 over the next 5 years. Or, Bill can invest $6,200 in project B that promises to pay $1,600, $1,600, $1,600, $3,600 and $3,900 over the next 5 years. (Hint: For mixed stream cash inflows, calculate cumulative cash inflows on a year-to-year basis until the initial investment is recovered.) a. How long will it take for Bill to recoup his initial investment in project A? b. How long will it take for Bill to recoup his initial investment in project B? c. Using the payback period, which project should Bill choose? d. Do you see any problems with his choice?

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 15E

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Time value of money calculations lydia and Sam would like to buy a house and their dream home costs $500,000. Their goal is then to save $50,000 for a down payment and then would take out a mortgage loan for the rest. They plan to put their monthly saved amount in a conservative mutual fund that has a track record of a 5.2% rate of return. To be sure they don’t go spending this money on other things, they are going to move it into their investment account at the beginning of each month. a.Their hope is to be able to buy this home in 7 years. What would their monthly savings amount have to be to reach this goal?b.What will be the total interest earned be?
Aronscript Suppose someone wants to accumulate $50,000 for a college fund over the next 15 years. Determine whether the following investment plans will allow the person to reach the goal. Assume the compounding and payment periods are the same. The person deposits $140 per month into an account with an APR of 6% Will the person meet the goal? Select the correct choice below and fill in the answer box to complete your choice (Round the final answer to the nearest cent as needed. Round all intermediate values to six decimal places as needed) is less than the goal of $50,000. A. No, because the amount that will be in the college fund, $ OB. Yes, because the amount that will be in the college fund, S is more than the goal of $50,000
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