COST ACCOUNTING
CAPITAL BUDGETING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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7 years
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6 years
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5 years
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6.5 Years
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Detailed explanation-1: -We calculate the initial investment by netting all of the incremental cash flows that occur at time zero: subtracting all the cash outflows occurring at time zero from all the cash inflows that occur at that time.
Detailed explanation-2: -Formula. Initial cash flows = FC+WC-S + (S-B) * T Here, FC = fixed capital, WC = working capital, S = Salvage value, B = Book value, T = Tax rate.
Detailed explanation-3: -The payback period in capital budgeting gives the number of years it takes for you to recover the cost of the investment. For example, if it takes 10 years for you to recover the cost of the investment, then the payback period is 10 years. The payback period is an easy method to calculate the return on investment.
Detailed explanation-4: -The payback period is the time required to earn back the amount invested in an asset from its net cash flows. It is a simple way to evaluate the risk associated with a proposed project.