8 years Redwood Corporation is considering two alternative investment proposals with the following data: Proposal X…
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Question “8 years Redwood Corporation is considering two alternative investment proposals with the following data: Proposal X…”
8 years Redwood Corporation is considering two alternative investment proposals with the following data: Proposal X Proposal Y Investment $800,000 $494,000 Useful life 8 years Estimated annual net cash inflows for 8 years $135,000 $83,000 Residual value $37,000 $- Depreciation method Straight-line Straight-line Required rate return 15% 14% How long is the payback period for Proposal Y? A. 5.95 years OB. 5.93 years O c. 21.62 years OD. 13.35 years
Answer
Solution:
Proposal Y Invstement = $494,000.
Annual Net Cash Inflow = 83,000
Payback Period = Investment cost / Annual net cash inflow
= $494,000 / $83,000
=5.95 Years.
Thus, the Payback Period for Proposal #Y is 5.95 years
Option A) 5.95 Years is correct.
Conclusion
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