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

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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.

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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?

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