- Trending Categories
Data Structure
Networking
RDBMS
Operating System
Java
iOS
HTML
CSS
Android
Python
C Programming
C++
C#
MongoDB
MySQL
Javascript
PHP
Physics
Chemistry
Biology
Mathematics
English
Economics
Psychology
Social Studies
Fashion Studies
Legal Studies
- Selected Reading
- UPSC IAS Exams Notes
- Developer's Best Practices
- Questions and Answers
- Effective Resume Writing
- HR Interview Questions
- Computer Glossary
- Who is Who
How investments are determined good or bad?
Solution
The solution is given below −
Total sales (in billion tons) – current = 16 Total sales (in billion tons) – proposed = 16 + 7 => 23
Incremental cash flows
- Sales
Current
Domestic sales => 8 * 80 => 640 Export sales => 8 * 120 => 960 Total current sales = 640 + 960 => 1600
Proposed
Domestic sales => 12 * 80 => 960 Export sales => 11 * 120 => 1320 Total current sales = 640 + 960 => 2280
Incremental = proposed – sales => 2280 – 1600 => 680
- Variable cost => (11*20) + (12*15) => 220 – 180 => 40
- Contribution margin => sales – variable costs
- Current => 1600 – 180 => 1420
- Proposed => 2280 – 220 => 2060
- Fixed cost
- Current => 140
- Proposed => 260
Net cash => contribution margin – fixed cost
- Current => 1420 – 140 => 1280
- Proposed => 2060 – 260 => 1800
Incremental => net cash (proposed) – net cash (current) => 1800 – 1280 => $520 billion
Pay back => initial investment/ net cash (incremental) => 1000/ 520 => 1.92 years (approximately)
Calculated payback (1.92 years) is less than estimated payback (4 years)
Hence, we can conclude that it is a good investment.
- Related Articles
- Is sharing of Knowledge, Good or Bad?
- Is acid rain good or bad for humans?
- What are Good and Bad Interface Designs?
- Most non-metals are (bad/good) conductors of heat.
- Good AI Vs Bad AI
- What are the differences between good conductors and bad conductors?
- What are mutually exclusive investments?
- What according to you are the good and bad sides of the #MeToo movement?
- What is the difference between a Good Conductor and Bad Conductor?
- What are bad links?
- What are the three components of cash in investments?
- What are the three important steps in the evaluation of investments?
- Why are women considered bad drivers?
- ( 75 % ) of 32 students are good in football. How many students are not good in football?
- Why are "continue" statements bad in JavaScript?

Advertisements