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1)An investment project has annual cash inflows of $3,600, $5,100
1)An investment project has annual cash inflows of $3,600, $5,100. $6,000, and $8,200 for the next four years, respectively. The discount rate is 12 percent. What is the discounted payback period for these cash flows if the initial cost is $15,000? Enter your answer as years with 2 digits to the right of the decimal point in the box shown below.
2)
Yakahoma Corp has 80.000 common stocks. At the end of a profitable year it decides to pay $2 cash dividend and 5 percent stock dividend. Current stock price is $12. How much will retained earnings reduce after cash and stock dividends distributed? *
$208,000
$368,000
$48,000
$160,000
Expert Solution
1)
The total of present value of cashflows for 3 years = $11,550.66
The total of present value of cashflows for 4 years = $16,761.90
Initial cost = $15,000
Since, 15,000 lies between 11,550.56 and 16,761.90, Discounted Payback Period lies between year 3 and year 4.
Discounted Payback Period = 3 + (15,000 - 11,550.56) / 5,211.25 = 3.66 years (Approximately)
Therefore, Discounted Payback Period = 3.66 years.
please see the attached file.
2)
Calculation of reduction of Retained Earnings after payment of Cash Dividend and stock dividend
Cash Dividend = $2 * 80,000 = $160000
Stock Dividend = 5% of ( 80,000 * 12 ) = $48000
Total Reduction = Cash Dividend +Stock Dividend
= $160000 + $48000
= $ 208000
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