The American Pharmaceutical Company? (APC) has a policy that all capital investments must have a four?-year...

Free

70.2K

Verified Solution

Question

Finance

The American Pharmaceutical Company? (APC) has a policy that allcapital investments must have a four?-year or less discountedpayback period in order to be considered for funding. The MARR atAPC is 8?% per year. Is the above project able to meet thisbenchmark for? funding?
End of Year   Cash Flow, $
0   -290,000
1   -45,000
2   60,000
3   180,000
4   260,000
5   330,000
6-10   110,000
A) The payback period is how many years? B) Does the projectmeet the benchmark?

Answer & Explanation Solved by verified expert

3.9 Ratings (550 Votes)

A)	3.72 years

Working:

Year	Cash flow	Discount factor	Present value	Cumulative present value
a	b	c=1.08^-a	d=b*c	e
0	-2,90,000.00	1.0000	-2,90,000.00	-2,90,000.00
1	-45,000.00	0.9259	-41,666.67	-3,31,666.67
2	60,000.00	0.8573	51,440.33	-2,80,226.34
3	1,80,000.00	0.7938	1,42,889.80	-1,37,336.53
4	2,60,000.00	0.7350	1,91,107.76	53,771.23
5	3,30,000.00	0.6806	2,24,592.46	2,78,363.68
6	1,10,000.00	0.6302	69,318.66	3,47,682.34
7	1,10,000.00	0.5835	64,183.94	4,11,866.29
8	1,10,000.00	0.5403	59,429.58	4,71,295.86
9	1,10,000.00	0.5002	55,027.39	5,26,323.25
10	1,10,000.00	0.4632	50,951.28	5,77,274.53

Discounted payback period		=	3+(137336.53/191107.76)
		=	3.72	Years


B)	Yes

As the discounted payback period is within time allowed of 4 years, it meets the benchmark.

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

The American Pharmaceutical Company? (APC) has a policy that allcapital investments must have a four?-year or less discountedpayback period in order to be considered for funding. The MARR atAPC is 8?% per year. Is the above project able to meet thisbenchmark for? funding?End of Year Cash Flow, $0 -290,0001 -45,0002 60,0003 180,0004 260,0005 330,0006-10 110,000A) The payback period is how many years? B) Does the projectmeet the benchmark?