Answer:
Explanation:
A Promotion
On January 1, the company purchased equipment that cost $10,000. The equipment is expected to be worth about (or has a salvage value of) $1,000 at the end of its useful life in five years. The company uses straight-line depreciation. It has not recorded any adjustments relating to this equipment during the current year. Complete the necessary December 31 journal entry by selecting the account names from the pull-down menus and entering dollar amounts in the debit and credit columns.
View transaction list
Note: Enter debits before credits.
Date General Journal Debit Credit
Dec. 31 es Depreciation expense
Accumulated depreciation
Record entry Clear entry View general journal
Answer:
See below
Explanation:
10000-1000=9000 to be depreciated
9000/5=1800 annual depreciation
journal entry:
depreciation expense. 1800 (debit)
Accumulated depreciation. 1800 (credit)
to record annual depreciation
"On January 1, the company purchased equipment that cost $10,000. ".the necessary December 31 journal entry is
1800 is the cost of depreciation (debit)
Depreciation that has accumulated. 1800 (credit)
What is a journal entry?Generally, a journal entry is simply defined as a journal used to write a commercial business in the accounting records of a company.
In conclusion, journal entries show business transactions.
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A company has established 5 pounds of Material J at $2 per pound as the standard for the material in its Product Z. The company has just produced 1,000 units of this product, using 5,200 pounds of Material J that cost $9,880.The direct materials price variance is:______.
a. $520 unfavourable.
b. $400 unfavourable.
c. $120 favourable.
d. $520 favourable.
e. $400 favourable.
Answer:
d. $520 favourable.
Explanation:
Calculation to determine what The direct materials price variance is:
Using this formula
Material Price variance= AQ(SP- AP)
Where,
Actual Quantity= 5200
Standard price= $2
Actual Price= $1.9
Let plug in the formula
Material Price variance=5200($2-$1.9)
Material Price variance=5200*$0.1
Material Price variance=$520 Favourable
Therefore The direct materials price variance is:$520 Favourable
Contribution Margin Willie Company sells 24,000 units at $33 per unit. Variable costs are $21.78 per unit, and fixed costs are $134,600.
Determine (a) the contribution margin ratio, (b) the unit contribution margin, and (c) operating income.
a. Contribution margin ratio (Enter as a whole number.) ______ %
b. Unit contribution margin (Round to the nearest cent.) $_______ per unit
c. Operating income $______
Answer:
a. 0.34 or 34 %
b. $11.22
c. $134,680
Explanation:
Unit Contribution Margin = Sales per unit - Variable Costs per unit
= $33.00 - $21.78
= $11.22
Contribution margin ratio = Contribution ÷ Sales
= $11.22 ÷ $33.00
= 0.34
Operating Income = Contribution - Fixed Cost
= ($11.22 x 24,000 units) - $134,600
= $134,680
Beaver Company (a multi-product firm) produces 5,000 units of Product X each year. Each unit of Product X sells for $8 and has a contribution margin of $5. If Product X is discontinued, $18,000 of fixed overhead would be eliminated. As a result of discontinuing Product X, the company's overall operating income would:_______.
A. Decreaseby $25,000
B. Increase by $43,000
C. Decrease by $7,000
D. Increase by $7,000
Answer:
C. Decrease by $7,000
Explanation:
Calculation to determine what company's overall operating income would Decrease by
Using this formula
Overall operating income =(Product X units*Contribution margin )-Fixed overhead eliminated
Let plug in the formula
Overall operating income=(5,000 units*$5)-$18,000
Overall operating income=$25,000-$18,000
Overall operating income=$7,000 Decrease
Therefore As a result of discontinuing Product X, the company's overall operating income would:Decrease by $7,000
Meyer Company reported the following for its recent year of operation:
From Income Statement:
Depreciation Expense $1,000
Loss on the Sale of Equipment (3,000)
From the comparative balance sheet:
Beginning balance, equipment $12,500
Ending balance, equipment 8,000
Beginning balance, accumulated depreciation 2,000
Ending balance, accumulated depreciation 2,600
No new equipment was purchased during the year. What was the selling price of the equipment?
Answer:
$900
Explanation:
Calculation to determine the selling price of the equipment
First step
Cost of equipment sold = Beginning balance - Ending balance
Cost of equipment sold=$12,500-$8,000
Cost of equipment sold=$4,500
Second step
Ending balance= Beginning balance + Depreciation expense - Accumulated depreciation on equipment sold
Ending balance=$2,000+$1,000-$600
Ending balance=$2,400
Third step
Book value = Cost of equipment sold - Accumulated depreciation on equipment sold
Book value=$4,500-$600
Book value=$3,900
Now let determine the selling price of the equipment
Selling price=$3,000-$3,900
Selling price=$900
Therefore the selling price of the equipment.is $900
On December 31, Jacoby Company's Prepaid Rent account had a balance before adjustment of $6,000. Three months' rent was paid in advance on December 1, the first day of the lease term. The adjusting entry needed on December 31 is:
Answer:
Debit Rent Expense $2,000; credit Prepaid Rent $2,000.
Explanation:
Assuming On December 31, the Company's Prepaid Rent account had a balance before adjustment of the amount of $6,000 which means that if the Three months' rent was paid in advance on December 1, The adjusting entry needed on December 31 is:
Debit Rent Expense $2,000
Credit Prepaid Rent $2,000.
($6000/3month)
(To record Rent Expense)
Elderly woman purchases a table from a local furniture store for $5,000. She decides she does not want the table because of a defect. The woman successfully cancels the payment on the credit card for payment of the table, and continues to keep the table despite the store requesting to pick the table up from woman. What statement is true:
Answer:
She cannot keep the table
Explanation:
In the given scenario we will look at the different parties and wether they are satisfied with the transaction.
The buyer picked the table after which she complained about a defect and refused to pay. Because she refused to pay she cannot take ownership of the table so she has to return it.
The store did not receive payment for the table so they have the right to request for the table back from the elderly woman.
So she cannot keep the table.
The statement that is true is that she cannot keep the table
In the given scenario, we will look at the different parties and whether they are satisfied with the transaction.
Here, the buyer picked the table after which she complained about a defect and refused to pay. Because she refused to pay she cannot take ownership of the table so she has to return it.
Now, the store did not receive payment for the table so they have the right to request for the table back from the elderly woman.
In conclusion, the statement that is true is that she cannot keep the table
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Can someone please help with this question ^▪︎^
Answer:
liability
Explanation:
Let illustrate what you you know about materiality concept.
Answer:
rfb rgab rko
its a study meeting of girls i am also girl here we only study boy were not allowed because he disturb here we only study its safe meeting of girl here we only study
In some organizations, trust is facilitated through root authorities outside the organization, and many organizations choose to delegate authority for trust within their own AD environment. Discuss some the challenges of managing trust within an organization, and the alternatives.
Answer:
Administration is responsible for managing different resources required for a company to operate in the market. With this, some important challenges arise when managing trust within an organization, since every organization is managed by people who can be trusted or who may defraud financial resources for example for their own benefit.
The accounting department of an organization is one of those that most need the manager's trust and ethical attitudes, as it deals with important information for the organization and which may be the target of fraud, which is why it is common to hire external auditors who do not have direct involvement with the administration to perform some tasks necessary for accounting.
There are many challenges related to organizational trust, so the essential is that there is transparency in the processes, professional ethics, legality and compliance with requirements.
Which of the following describe management's use of a master budget: Multiple select question. Helps in determining bonuses to managers who meet budgets Helps analyze differences between actual and budgeted results Helps to place blame on managers who do not meet budgets Helps reveal undesirable outcomes Helps in planning and control activities
Answer:
Helps analyze differences between actual and budgeted results
Helps reveal undesirable outcomes
Helps in planning and control activities
Explanation:
A master budget comprised of future income statement or planned operating budget and the future balance sheet or financial budget that represent the goals and objectives of the organization and the ways to achieve them. It identified the actual & budgeted results difference, It disclosed the non-desirable results and also it helps in activities that deals in planning & controlling
Therefore the above statements should be correct
If the average annual rate of return for common stocks is 11.7 percent, and 4.0 percent for U.S. Treasury bills, what is the average market risk premium?
Answer:
7.7%
Explanation:
Risk premium is the return an investor would want for holding a risky bond. It is the excess return earned over holding a risk free bond
Risk premium = return on risky asset - return on U.S. Treasury bills
The U.S. Treasury bills is considered to be risk free because the US government cannot default
On the other hands, stocks are risky because companies can default on payment of dividends due to various reasons e.g. insolvency
11.7 - 4 = 7.7%
A company manufactures aluminum cans for the beverage industry and prepares its financial statements in accordance with International Financial Reporting Standards (IFRS). During its latest full fiscal year, the company recorded the following:
Inventory Item Amount € (thousands)
Raw material aluminum costs 150,000
Storage of finished cans 15,000
Wasted aluminum materials from abnormal production errors during the year 500
Transportation-in costs 640
Tax-related duties 340
Administrative overhead 7,500
Trade discounts due to volume purchases throughout the year 520
The total costs included in inventory (in € thousands) for the year are closest to: ____________
Answer: 150,460 currency units
Explanation:
The costs that are included in inventory include:
Cost of raw materials Transportation in costs Tax duties Trade discountsInventory cost is:
= Cost of raw materials + Transport in costs + Tax duties - Trade discounts
= 150,000 + 640 + 340 - 520
= 150,460 currency units
If a business adopts a low-cost strategy, it should build a supply chain with ________. Question 43 options: 1) product development skills 2) modular design in products 3) fast transportation 4) buffer stock 5) minimized inventory
Answer:
5) minimized inventory
Explanation:
If a company adopts a low-cost strategy, it must build a supply chain with minimized inventory, which configures that the company is adopting a just-in-time management strategy, which is an administration system whose philosophy is a production system according to demand, avoiding wasted stock and, consequently, unnecessary costs.
If a business adopts a low-cost strategy, it should build a supply chain with 5)minimized inventory.
What is a low-cost strategy?
A pricing strategy in which an employer offers a surprisingly low rate to stimulate the call for and benefit marketplace proportion.
How would you select the right supply chain strategy?Awareness on whether or not your organization offerings a client base that wishes immediate transport of product, or one wherein customers keep in mind that a lead time regularly accompanies their buy order. understand the effect of competition and whether or not maintaining safety stock is important to remain income.
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You purchased a zero-coupon bond one year ago for $280.83. The market interest rate is now 9 percent. Assume semiannual compounding. If the bond had 15 years to maturity when you originally purchased it, what was your total return for the past year
Answer:
3.82%
Explanation:
Calculation to determine total return for the past year
First step is to find the price of the bond today.
P1= $1,000 / [1+(9%/2)]
P1= $1,000 / 1+.045
P1= $1,000 / 1.045
P1= $291.57
Now let determine the total return for the past year using this formula
R=Bond price today - Bond price one year ago/Bond price one year ago
Let plug in the formula
R= ($291.57 – $280.83) / $280.83
R=$10.74/$280.83
R= .0382*100
R=3.82%
Therefore total return for the past year is 3.82%
Shalimar Company manufactures and sells industrial products. For next year, Shalimar has budgeted the following sales:
Quarter 1 $4,600,000
Quarter 2 5,100,000
Quarter 3 5,000,000
Quarter 4 7,600,000
In Shalimar's experience, 10 percent of sales are paid in cash. Of the sales on account, 65 percent are collected in the quarter of sale, 25 percent are collected in the quarter following the sale, and 7 percent are collected in the second quarter after the sale. The remaining 3 percent are never collected. Total sales for the third quarter of the current year are $4,900,000 and for the fourth quarter of the current year are $6,850,000.
Required:
Calculate cash sales and credit sales expected in the last two quarters of the current year, and in each quarter of next year.
Answer:
Shalimar Company
Cash Sales and Credit Sales:
a) Last two quarters of the current year:
Current Year Quarter 3 Quarter 4
Budgeted Sales $4,900,000 $6,850,000
Cash (10%) 490,000 685,000
Credit (90%) 4,410,000 6,165,000
b) Each quarter of the next year:
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Budgeted
Sales $4,600,000 $5,100,000 $5,000,000 $7,600,000
Cash (10%) 460,000 510,000 500,000 760,000
Credit
Sales (90%) 4,140,000 4,590,000 4,500,000 6,840,000
Explanation:
a) Data and Calculations:
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Budgeted
Sales $4,600,000 $5,100,000 $5,000,000 $7,600,000
Cash (10%) 460,000 510,000 500,000 760,000
Credit
Sales (90%) 4,140,000 4,590,000 4,500,000 6,840,000
Current Year Quarter 3 Quarter 4
Budgeted Sales $4,900,000 $6,850,000
Cash (10%) 490,000 685,000
Credit (90%) 4,410,000 6,165,000
Cardco Inc. has an annual accounting period that ends on December 31. During the current year a depreciable asset that cost $42,000 was purchased on September 1. The asset has a $4,000 estimated salvage value. The company uses straight-line depreciation and expects the asset to have a five-year life. What is the total depreciation expense for the current year
Answer: $2,533.33
Explanation:
First you need to calculate the annual depreciation:
= (Cost of asset - Salvage value) / Useful life
= (42,000 - 4,000) / 5
= 38,000 / 5
= $7,600
The asset was bought on September 1 and needs to be depreciated for the months of the year it was in the business. That would be September to December which is 4 months.
Depreciation for that year is:
= 7,600 * 4/12 months
= $2,533.33
Find the amount of each payment to be made into a sinking fund so that enough will be present to accumulate the following amount. Payments are made at the end of each period. The interest rate given is per period.
$77,000; money earns 4.5% compounded monthly for 1-2/3 years
Select one:
a. $719.42
b. $3714.64
c. $758.89
d. $1374.87
b. If you deposit $2000 into a fund paying 4% interest compounded monthly, how much can you withdraw at the end of each month for one year?
a. $177.48
b. $153.36
c. $189.12
d. $170.30
e. none of these
Answer:
Results are below.
Explanation:
a.
Future Value= $77,000
Number of periods= 1*12 + (2/3)*12= 20 months
Interest rate (i)= 0.045/12= 0.00375
To calculate the monthly deposit required, we need to use the following formula:
FV= {A*[(1+i)^n-1]}/i
A= monthly deposit
Isolating A:
A= (FV*i)/{[(1+i)^n]-1}
A= (77,000*0.00375) / [(1.00375^20) - 1]
Monthly deposit= $3,714.64
b.
Monthly deposit= $2,000
Interest rate= 0.04/12= 0.0033
Number of periods= 12 months
To calculate the monthly withdrawal, we need to use the following formula:
Monthly withdraw= (PV*i) / [1 - (1+i)^(-n)]
Monthly withdraw= (2,000*0.0033) / [1 - (1.0033^-12)]
Monthly withdraw= $170.26
A merit good is Multiple Choice Income payments for which no goods or services are exchanged. A good society holds to a higher standard in tax regulations. A good or service that society believes everyone is entitled to a minimal quantity of. A product that serves as an incentive to produce more output.
Answer:
A product that serves as an incentive to produce more output.
Explanation:
Merit goods are those goods that contains the positive externality and it could be generated or produced more and more in the market.
So it is a product that could be treated as the incentive for generating the maximum output and the incentive should be provided by the government
Therefore the last option is correct
MC Qu. 54 Maxim manufactures a hamster food product... Maxim manufactures a hamster food product called Green Health. Maxim currently has 10,000 bags of Green Health on hand. The variable production costs per bag are $3.60 and total fixed costs are $10,000. The hamster food can be sold as it is for $8.95 per bag or be processed further into Premium Green and Green Deluxe at an additional $2,200 cost. The additional processing will yield 10,000 bags of Premium Green and 3,200 bags of Green Deluxe, which can be sold for $7.95 and $5.95 per bag, respectively. The net advantage (incremental income) of processing Green Health further into Premium Green and Green Deluxe would be:
Answer:
Maxim
The net advantage (incremental income) of processing Green Health further into Premium Green and Green Deluxe would be:
= $6,840.
Explanation:
a) Data and Calculations:
Inventory of Green Health = 10,000 bags
Production costs per bag = $3.60
Total variable costs = $36,000 (10,000 * $3.60)
Total fixed costs = $10,000
Total production costs = $46,000 ($36,000 + $10,000)
Selling price before further processing = $8.95 per bag
Total revenue from selling 10,000 bags = $89,500 (10,000 * $8.95)
Additional processing cost = $2,200
Total revenue from selling 10,000 bags of Premium Green and 3,200 bags of Green Deluxe:
Premium Green (10,000 * $7.95) = $79,500
Green Deluxe (3,200 * $5,95) = 19,040
Total revenue = $98,540
Less additional processing costs (2,200)
Net revenue from further processing $96,340
Net advantage of further processing = $6,840 ($96,340 - $89,500)
Buff is considering a new packaging machine. The initial cost is $10,000 and we would save $4,000 per year in labor costs. If our MARR is 12% and our projects must have a 3-year discounted payback period, should we purchase this packaging machine?
Yes
No
Not enough nformation to answer.
Answer:
NO
Explanation:
Discounted payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative discounted cash flows
For the machine to be accepted, the total amount invested should be recovered in three years or less
Amount recovered = - cost of the project + discounted value of the cash flow
Amount recovered in year 1 = -10,000 + (4000 / 1.12) = -6,428.57
Amount recovered in year 2= -6,428.57 - (4000/ 1.12^2) = -3239.74
Amount recovered in year 3= -3239.74 + (4000/ 1.12^3) = -392.62
the project would not be accepted because the amount invested would not be recovered within 3 years
Nền kinh tế Việt Nam đang vận hành theo:
Answer In English: Vietnam's economy is operating according to ...
Zhang Industries is preparing a cash budget for June. The company has $25,000 cash at the beginning of June and anticipates $95,000 in cash receipts and $111,290 in cash disbursements during June. The company has no loans outstanding on June 1. Compute the amount the company must borrow, if any, to maintain a $20,000 cash balance. Multiple Choice $11,290. $28,710. $12,290. $6,290. $16,290.
Answer:
$11,290
Explanation:
The computation of the amount that should be borrowed is given below:
Opening cash balance $25,000.00
Add Cash Receipts 95,000.00
Less Cash Disbursements (111,290.00)
Balance before adjustment 8,710.00
Desired ending cash balance 20,000.00
Amount to be borrowed 11,290.00
Hence, the first option is correct
A company issued 30 shares of $.50 par value common stock for $12,000. The credit to additional paid-in capital would be ________.
A. $1.985.
B. $12,000.
C. $15.
D. $10,150.
Answer: $11,985
Explanation:
The credit to the Additional paid-in capital is the excess over the pa value of the stock that was sold. The formula is therefore:
Additional paid-in capital = Cash stock was sold for - Par value of stock
Par value of stock = 30 shares * 0.50
= $15.00
Additional paid-in capital = 12,000 - 15
= $11,985
Three months ago, Central Supply stock was selling for $51.40 a share. At that time, you purchased five put options on the stock with a strike price of $52 per share and an option price of $0.60 per share. The option expires today when the value of the stock is $42.70 per share. What is your net profit or loss on this investment
Answer:
$4,350
Explanation:
Calculation to determine your net profit or loss on this investment
Net profit = (-$0.60 - $42.70 + $52) × 100 × 5
Net profit= $4,350
Therefore your net profit or loss on this investment is $4,350
One large bakery still receives flour in 25-pound bags from their own company's warehouse. They use an average of 5500 bags a year. The production step that uses these bags use 35 bags per day while the usage is 16 bags per day. It costs $12.00 to configure the machines for each run. Annual carrying costs are $7.50 per bag. What will be their average number of bags on hand if they request the EPQ bags in each order
Answer:
48.87 bags
Explanation:
First, we need to calculate the EPQ as follow
EPQ = [tex]\sqrt{\frac{2 D S }{H(1-d/p)}}[/tex]
Where
D = Annual Demand = 5500
S = Setup cost = $12
H = Carrying cost = $7.5
d = Daily usage = 16
p = Daily production = 35
Placing value sinthe formula
EPQ = [tex]\sqrt{\frac{2 X 5500 X 12 }{7.5(1-16/35)}}[/tex]
EPQ = [tex]\sqrt{\frac{132000 }{4.07142857}}[/tex]
EPQ = [tex]\sqrt{32421.05}[/tex]
EPQ = 180.06
Now Calculate the average number of bags in hand as follow
Average Number of Bags = [tex]\frac{EPQ}{2} X ( 1 - d/p )\\[/tex]
Placing values in the formula
Average Number of Bags = [tex]\frac{180.06}{2} X ( 1 - 16/35 )\\[/tex]
Average Number of Bags = 48.87
Selling price $220 per unit
Variable production costs $90 per unit produced
Variable selling and admin. expenses $25 per unit sold
Fixed production costs $600,000
Fixed selling and admin. expenses $400,000
Units produced 12,000 units
Units sold 11,500 units
There were no beginning inventories.
Required:
Compute Arrow's operating income for the month of May using the variable-costing method.
Answer:
Net operating income= $207,500
Explanation:
The variable costing method incorporates all variable production costs (direct material, direct labor, and variable overhead).
First, we will determine the total unitary variable overhead:
total unitary variable overhead= 90 + 25= $115
Now, we can calculate the total contribution margin:
Total CM= 11,500*(220 - 115)
Total CM= $1,207,500
Finally, the net operating income:
Net operating income= 1,207,500 - 600,000 - 400,000
Net operating income= $207,500
EcoFabrics has budgeted overhead costs of $1,162,350. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 553,500 for the current year. The company has decided to experiment with activity-based costing and has created two activity cost pools and related activity cost drivers. These two cost pools are cutting (cost driver is machine hours) and design (cost driver is number of setups). Overhead allocated to the cutting cost pool is $442,800 and $719,550 is allocated to the design cost pool. Additional information related to these pools is as follows.
Wool Cotton Total
Machine hours 123,000 123,000 246,000
Number of setups 1,230 615 1,845
1. Calculate the overhead rate using activity based costing. (Round answers to 2 decimal places, e.g. 12.25.)
2. Determine the amount of overhead allocated to the wool product line and the cotton product line using activity-based costing.
3. Calculate the overhead rate using traditional approach. (Round answer to 2 decimal places, e.g. 12.25.)
4. What amount of overhead would be allocated to the wool and cotton product lines using the traditional approach, assuming direct labor hours were incurred evenly between the wool and cotton?
Answer:
EcoFabrics
1. Overhead Rates using activity-based costing:
Cutting = $1.80 per machine hour
Design = $390 per setup
2. Allocation of overhead:
Wool Cotton
Cutting $221,400 $221,400
Design 479,700 239,850
Total allocated $701,100 $461,250
3. Overhead rate using the traditional approach:
Predetermined overhead rate = $2.10
4. Allocation of overhead:
Wool Cotton
Total allocated $581,175 $581,175
Explanation:
a) Data and Calculations:
Budgeted overhead costs = $1,162,350
Estimated direct labor hours = 553,500
Activity Cost Cost Drivers Overhead Costs Wool Cotton Total
Pools
Cutting Machine hours $442,800 123,000 123,000 246,000
Design Number of setups 719,550 1,230 615 1,845
1. Overhead Rates using activity-based costing:
Cutting = $1.80 ($442,800/246,000) per machine hour
Design = $390 ($719,550/1,845) per setup
2. Allocation of overhead:
Wool Cotton
Cutting $221,400 ($1.80 * 123,000) $221,400 ($1.80 * 123,000)
Design 479,700 ($390 * 1,230) 239,850 ($390 * 615)
Total allocated $701,100 $461,250
3. Overhead rate using the traditional approach:
Predetermined overhead rate = $2.10 ($1,162,350/553,500)
4. Allocation of overhead:
Wool Cotton
Total allocated $581,175 ($1,162,350 * 50%) $581,175 ($1,162,350 * 50%)
XYZ Corporation uses a process costing system to collect costs related to the production of its cola. The cola is first processed in a Mixing Department and is then transferred out and finished up in the Bottling Department. The finished cases of cola are then transferred to Finished Goods Inventory. The following information relates to the company's two departments for the month of January:
Cases of cola in WIP, January 1: Mixing = 10,000; Bottling = 3,000
Cases of cola completed/transferred out during January: Mixing = 77,000; Bottling = ?
Cases of cola in WIP, January 31: Mixing = 4,000; Bottling = 8,000
Required:
How many cases of cola were completed and transferred to Finished Goods Inventory during January:
a. 66,000
b. 71,000
c. 72,000
d. 74,000
Payback Period Payson Manufacturing is considering an investment in a new automated manufacturing system. The new system requires an investment of $1,200,000 and either has: Even cash flows of $800,000 per year or The following expected annual cash flows: $150,000, $150,000, $400,000, $400,000, and $100,000.
Required:
Calculate the payback period for each case.
Answer:
Assuming cashflows of $800,000 a year:
Payback period = Investment / Stable cashflow
= 1,200,000 / 800,000
= 1.5 years
Assuming uneven cashflows:
Payback period = Number of years before payback year + Cash remaining to be paid / Cashflow in payback period
= 150,000 + 150,000 + 400,000 + 400,000
= $1,100,000
Years before payback year = 4 years
Cash remaining to be paid back = Investment - Cashflow so far
= 1,200,000 - 1,100,000
= $100,000
Payback period = 4 + 100,000 / 100,000
= 5 years
