GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Cash flow before depreciation and after taxes
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Cash flow after depreciation but before taxes
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Cash flow before depreciation and taxes
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Cash flow after depreciation and taxes
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Detailed explanation-1: -Cash flow after taxes are used to compute the payback period. Depreciation is not considered for calculating cash flows (i.e. depreciation will not be deducted) Was this answer helpful?
Detailed explanation-2: -Cash flow from operating activities is calculated by adding depreciation to the earnings before income and taxes and then subtracting the taxes. A company’s EBIT–also known as its earnings before interest and taxes–consists of its net income before income tax and interest expenses are deducted.
Detailed explanation-3: -Adding depreciation = ($1 million x 10%) = $100, 000 Total cash flow = $142, 000. Payback period = Total investment ($1 million) / Total cash flow ($142, 000) = 7 years.
Detailed explanation-4: -The discounted payback period is a capital budgeting procedure used to determine the profitability of a project. Discounted cash flow (DCF) is a valuation method used to estimate the attractiveness of an investment opportunity.
Detailed explanation-5: -To calculate the payback period you can use the mathematical formula: Payback Period = Initial investment / Cash flow per year For example, you have invested Rs 1, 00, 000 with an annual payback of Rs 20, 000. Payback Period = 1, 00, 000/20, 000 = 5 years.