123.For each of the capital budgeting methods listed below, place an X in the correct column, indicating the measurement basis of each, the ability to make comparison among projects, and whether each method reflects or ignores the time value of money.
124.Nebraska Co. is reviewing a capital investment of $100,000. This project's projected cash flows over a five-year period are estimated at $35,000 each year.
Required:
(a) Calculate the payback period.
(b) Calculate the break-even time. Assume a 12% hurdle rate and use the table below:
PeriodsPresent Value
of 1 at 12%
10.8929
20.7972
30.7118
40.6355
50.5674
(c) Using the results in (a) and (b), make a recommendation for the project.
125.A company is considering purchasing a machine for $85,000. The machine is expected to generate a net after-tax income of $11,250 per year. Depreciation expense would be $8,500. What is the payback period for this machine?
126.A company is trying to decide which of two new product lines to introduce in the coming year. The predicted revenue and cost data for each product line follows:
Product A Product B
Sales$80,000$96,000
Direct materials3,0006,000
Direct labor30,00045,000
Other cash operating expenses7,5009,000
New equipment costs75,000100,000
Estimated useful life (no salvage)5 years5 years
The company has a 30% tax rate, it uses the straight-line depreciation method, and it predicts that cash flows will be spread evenly throughout each year. Calculate each product's payback period. If the company requires a payback period of three years or less, which, if either, product should be chosen?
127.A company is considering a proposal to invest $40,000 in a project that would provide the following net cash flows:
Year 1$6,500
Year 212,700
Year 315,000
Year 412,800
Compute the project's payback period.