Payback Period =

Vishal Industries has an alternative to buy another truck with a payback period of 6 years. As a procurement manager in the company, compare and assess the alternatives as to which truck the company should buy.

Although it ignores the time value of money, what is the most common method used in practice for capital budgeting?

Which of the following is always true with regard to the net present value (NPV) approach?

If one motor costs $4000 and the other costs $5000, the cost differential is

 $\eta=\frac{desired\ output}{required\ input}$  

If a motor produces 45 kW of shaft power and its efficiency is 0.9, the power input required is

If a motor draws 50 kW of power for 1000 hrs/year, its annual energy expenditure is

 $\eta=\frac{desired\ output}{required\ input}$  
Two motors will both produce 45 kW, but one is 95% efficient and the other is 90% efficient. What is the difference in the amount of power drawn between them?

 $\eta=\frac{desired\ output}{required\ input}$  
Two motors will both produce 45 kW, but one is 95% efficient and the other is 90% efficient. They will be operated for 1000 hrs/yr. What is the difference in energy expenditure per year? 

Two motors will both produce 45 kW, but one is 95% efficient and the other is 90% efficient. They will be operated for 1000 hrs/yr. If electric costs $.10/kWh, what is the difference in energy costs per year?

 $Simple\ payback\ period\ =\ \frac{price\ difference}{annual\ savings}$  
You are considering upgrading your A/C unit to one that will save you $200 each year, but the upgrade costs $2000. How long will it be before you make back your money? 

Two motors will both produce 45 kW, but one is 95% efficient and costs $5000 and the other is 90% efficient and costs $4000. They will be operated for 1000 hrs/yr. If electric costs $.10/kWh, what is the simple payback period?

The ABC company is planning to purchase a machine known as machine X. Machine X would cost $25,000 and would have a useful life of 10 years with zero salvage value. The expected annual cash inflow of the machine is $10,000. Compute payback period of machine X and conclude whether or not the machine would be purchased if the maximum desired payback period of ABC company is 3 years.

The management of ABC company wants to reduce its labor cost by installing a new machine. Two types of machines are available in the market – machine X and machine Y. Machine X would cost $18,000 where as machine Y would cost $15,000. Both the machines can reduce annual labor cost by $3,000. Which is the best machine to purchase according to payback method?

An investment of $200,000 is expected to generate the following cash inflows in six years:

Year 1: $70,000

Year 2: $60,000

Year 3: $55,000

Year 4: $40,000

Year 5: $30,000

Year 6: $25,000

Compute payback period of the investment. Should the investment be made if management wants to recover the initial investment in 3 years or less?

An opportunity arises for a company which requires an initial investment of $800,000 now. The management’s discount rate is 12%.

The amount of cash inflows expected from the new opportunity are:

 Year-1 cash Inflow: $250,000

 Year-2 cash Inflow: $400,000

 Year-3 cash Inflow: $300,000

 Year-4 cash Inflow: $450,000

Compute the simple payback periods of the new investment opportunity. Is this investment opportunity acceptable under two methods if the maximum desired payback period of the management is 3 years?

Due to increased demand, the management of Rani Beverage Company is considering to purchase a new equipment to increase the production and revenues. The useful life of the equipment is 10 years and the company’s maximum desired payback period is 4 years. The inflow and outflow of cash associated with the new equipment is given below:

Initial cost of equipment: $37,500

Annual cash inflows:

Sales: $75,000

Annual cash Outflows:

Cost of ingredients: $45,000

Salaries expenses: $13,500

Maintenance expenses: $1,500

Non cash expenses:

Depreciation expense: $5,000

Required: Should Rani Beverage Company purchase the new equipment? Use payback method for your answer.

A project requires an initial investment of €1,200,000, and then earns net profits before depreciation as follows:

Year Profits (€)

1 300,000

2 400,000

3 600,000

4 500,000

At the end of the four years, the asset will be sold for €200,000. Company’s target ROCE is 18%.

Calculate the projects ROCE.

A Company wants to invest in new set of vehicles for the business. The vehicles cost £350,000 and would increase the company’s annual revenue by £100,000, as well as the company’s annual expenses by £10,000. The vehicles are estimated to have a useful shelf life of 20 years, with no salvage value. So, calculate ARR for this investment.

XYZ Company is considering investing in a project that requires an initial investment of $100,000 for some machinery. There will be net inflows of $20,000 for the first two years, $10,000 in years three and four, and $30,000 in year five. Finally, the machine has a salvage value of $25,000. Find the ROCE of this project