Question

Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows. Colby Hepworth has just invested $425,000 in a book and video store. She expects to receive a cash income of $120,000 per year from the investment. Kylie Sorensen has just invested $1,580,000 in a new biomedical technology. She expects to receive the following cash flows over the next 5 years: $350,000, $490,000, $790,000, $510,000, and $280,000. Carsen Nabors invested in a project that has a payback period of 4 years. The project brings in $960,000 per year. Rahn Booth invested $1,450,000 in a project that pays him an even amount per year for 5 years. The payback period is 2.5 years.

Required:

1. What is the payback period for Colby? Round your answer to two decimal places.
__________years

2. What is the payback period for Kylie? Round your answer to one decimal place.
__________years

3. How much did Carsen invest in the project?
$__________

4. How much cash does Rahn receive each year?
$__________ per year

Answer 1

The answer given below;

Step-by-step explanation:

1. Colby payback period $425,000/120,000=3.54 years

2. Kylie payback period $1,580,000-350,000-490,000=2 years+$740,000/910,000=2.81 years

3. Carsen Investment= 960,000*4=$3,840,000

4. Rahn=1,450,000/2.5=580,000 each year