What is the payback period for the cash flows shown below En

What is the payback period for the cash flows shown below? End of Year Net Cash Flow -20,000 20,000 30,000 50,000 20,000 60,000 40,000 0 4 c) 4.5 Save Question 5 (2 points) A company is producing a product that has the following data: Volume of sales per year 100,000 units Selling price per unit $90 Variable cost $30 per unit Fixed cost per year $500,000 Book depreciation $500,000 Tax depreciation $650,000 Debt interest $200,000 Tax rate = 40% With the above information, determine the: Before-tax profit. a) $4,800,000 b) $2,880,000 c) $2,940,000 d) $5,300,000

Solution

Q1. Year Cash flows Cumulative CF 0 -20000 -20000 1 -20000 -40000 2 -30000 -70000 3 50000 -20000 4 20000 0 5 60000 60000 6 40000 100000 Payback period is 4 years Answer is b. 4 years Q2. Sales revenue (100000 units @90) 9,000,000 Less: Variable cost (100000*30) 3,000,000 Contribution 6,000,000 Less: Fixed Cost Fixed cost 500,000 Depreciation 500,000 Debt interest 200,000 Net income before tax 4,800,000 Answer is a. $ 4800,000