Question 1Option 1: If a company makes an investment of $1,000,000 in new equipment which is expected to generate$250,000 in revenue per year, the payback period is?Option 2: If they have another option to invest $1,000,000 into equipment which they expect to generate$280,000 in revenue per year, the payback period is?Which option is better for the company?Question 2It will cost $3,700 to acquire a small ice cream cart. Cart sales are expected to be $2,900 a year for four years.After four years, the cart is expected to be worthless as that is the expected remaining life of the cooling system.What is the payback period of the ice cream cart?

Payback period is a financial metric used to measure the time it takes for an investment to recoup…

Answered: Option 1: If a company makes an…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 5PB: Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated...

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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?
Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. 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?
Question 2 A firm is considering an investment project that has a cost of $1 million and is expected to generate an annual after-tax cash flow of $250,000 for five years. It has already spent $25,000 in research and development (R&D) costs for the project. If the firm's required rate of return is 14 percent and consider R&D a sunck cost, what is the NPV of this project? A $25,000 B -$141,750 C +141,750 D $858,250
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