Salim tourism company plans to spend AED 75,000 on a new project. The predicted net cash flows are AED 25,000, AED 40,000, 20,000 and 30,000 over the next 4 years. Salim tourism company's acceptance cut-off period is 2.506 years. (a) Calculate the payback period of the project. (b) Should Salim tourism company accept this project?

Salim tourism company plans to spend AED 75,000 on a new project. The predicted net cash flows are AED 25,000, AED 40,000, 20,000 and 30,000 over the next 4 years. Salim tourism company's acceptance cut-off period is 2.506 years. (a) Calculate the payback period of the project. (b) Should Salim tourism company accept this project?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 2PB: Markoff Products is considering two competing projects, but only one will be selected. Project A...

See similar textbooks

Similar questions

Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?
Markoff Products is considering two competing projects, but only one will be selected. Project A requires an initial investment of $42,000 and is expected to generate future cash flows of $6,000 for each of the next 50 years. Project B requires an initial investment of $210,000 and will generate $30,000 for each of the next 10 years. If Markoff requires a payback of 8 years or less, which project should it select based on payback periods?
Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of 150,000 and will operate for five years. The cash flows associated with these projects are as follows: Statens required rate of return is 10%. Using the net present value method and the present value table provided in Appendix A, which of the following actions would you recommend to Staten? a. Accept Project X and reject Project Y. b. Accept Project Y and reject Project X. c. Accept Projects X and Y. d. Reject Projects X and Y.
If a copy center is considering the purchase of a new copy machine with an initial investment cost of $150,000 and the center expects an annual net cash flow of $20,000 per year, what is the payback period?
Bouvier Restaurant is considering an investment in a grill that costs $140,000, and will produce annual net cash flows of $21,950 for 8 years. The required rate of return is 6%. Compute the net present value of this investment to determine whether Bouvier should invest in the grill.
Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $30 million per year. Plane B has a life of 10 years, will cost $132 million, and will produce net cash flows of $25 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares are expected to be zero, and the company’s cost of capital is 12%. By how much would the value of the company increase if it accepted the better project (plane)? What is the equivalent annual annuity for each plane?
Dhofar water is installing new equipment at a cost of 140000 OMR. Expected cash flows from this project over the next three years will be 95000 OMR, 80000 OMR and 65000 OMR. The company's discount rate for such projects is 10 percent. What is the project's discounted payback period? Select one: O a. 1.44 years O b. 1.81 years O c. 2.82 years O d. None of these O e. 1.63 years
Oredo is installing new equipment at a cost of 240000 OMR. Expected cash flows from this project over the next three years will be 145000 OMR , 175000 OMR and 165000 OMR. The company's discount rate for such projects is 12 percent. What is the project's discounted payback period? Select one: a. 2.82 years b. 1.79 years c. 1.53 years d. None of these e. 1.74 years
The Ball Shoe Company is considering an investment project that requires an initial investment of $532,000 and returns cash inflows of $79,275 per year for 10 years. The firm has a maximum acceptable payback period of 8 years. a. Determine the payback period for this project. b. Should the company accept the project?
Company PPInvest has a project will produce cash inflows of $3,200 a year for 4 years with a final cash inflow of $5,700 in year 5. The project's initial cost is $9,500. What is the net present value of this project if the required rate of return is 16 percent? Should the project be accepted and why?