The Dilemma at Day-Pro

The Dilemma At Day-Pro

Essay or term paper "The Dilemma At Day-Pro" from category "Business"

Answer :

Year Synthetic Resin Epoxy Resin

Cash Flows Cumulative Cash Flows Cash Flows Cumulative Cash Flows

0 -$1,000,000 -$1,000,000 -$800,000 -$800,000

1 $350,000 -$650,000 $600,000 -$200,000

2 $400,000 -$250,000 $400,000 $200,000

3 $500,000 $250,000 $300,000 $500,000

4 $650,000 $900,000 $200,000 $700,000

5 $700,000 $1,600,000 $200,000 $900,000

Payback period for synthetic resin =

Payback period for epoxy resin =

Payback period is not appropriate to use as a material consideration for large-scale investments such as investments to build manufacturing thermosetting resin because the payback period does not take into account the time value of m’oney and do not take into account the cash flows received after the payback period. Payback period is only suitable for small companies or companies that want to invest in small scale with the acquisition priorities of liquidity as quickly as possible.

2. Calculate the Discounted Payback Period (DPP) using 10% as the discount rate. Should Tim ask the Board to use DPP as the deciding factor? Explain.

Answer :

Year Synthetic Resin Epoxy Resin

Undiscounted Cash Flows PVIF Discounted Cash Flows Cumulative Discounted Cash Flows Undiscounted Cash Flows PVIF Discounted Cash Flows Cumulative Discounted Cash Flows

0 -$1,000,000 1.000 ($1,000,000) ($1,000,000) -$800,000 1.000 ($800,000) ($800,000)

1 $350,000 0.909 $318,182 ($681,818) $600,000 0.909 $545,455 ($254,545)

2 $400,000 0.826 $330,579 ($351,240) $400,000 0.826 $330,579 $76,033

3 $500,000 0.751 $375,657 $24,418 $300,000 0.751 $225,394 $301,427

4 $650,000 0.683 $443,959 $468,376 $200,000 0.683 $136,603 $438,030

5 $700,000 0.621 $434,645 $903,021 $200,000 0.621 $124,184 $562,214

DPP for synthetic resin =

DPP for epoxy resin =

Just as with the model of the payback period, the DPP is not suitable for use as a material consideration for large-scale investments such as investments to build manufacturing thermosetting resin because even though the DPP has considered the time value of money