COST ACCOUNTING
PERFORMANCE MEASUREMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Initial amount of project was $ 20, 000 and net cash flow the project of year 1:$ 5, 000; year 2:$ 6, 000; year 3:$ 8, 000; year 4:10, 000. The payback period for
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4, 00 years
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3, 80 years
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3, 10 years
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3, 00 years
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Explanation:
Detailed explanation-1: -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-2: -Payback Period = 1, 00, 000/20, 000 = 5 years.
Detailed explanation-3: -Features of Payback Period The payback period is a simple calculation of time for the initial investment to return. It ignores the time value of money. All other techniques of capital budgeting consider the concept of the time value of money.
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