1. **Problem Statement:** Calculate the payback period for Company XYZ's project which costs 80,000 and generates returns over 6 years as follows: Year 1: 20,000, Year 2: 30,000, Year 3: 10,000, Year 4: 15,000, Year 5: 15,000, Year 6: 0. 2. **Formula and Explanation:** The payback period is the time it takes for cumulative cash inflows to equal the initial investment. It is calculated by adding yearly returns until the initial cost is recovered. 3. **Calculate cumulative returns:** - After Year 1: 20,000 - After Year 2: 20,000 + 30,000 = 50,000 - After Year 3: 50,000 + 10,000 = 60,000 - After Year 4: 60,000 + 15,000 = 75,000 - After Year 5: 75,000 + 15,000 = 90,000 4. **Determine payback period:** The initial investment is 80,000. After Year 4, cumulative returns are 75,000 which is less than 80,000. After Year 5, cumulative returns are 90,000 which exceeds 80,000. 5. **Calculate fraction of Year 5 needed:** $$\text{Fraction} = \frac{80,000 - 75,000}{15,000} = \frac{5,000}{15,000} = \frac{1}{3}$$ 6. **Final payback period:** $$4 + \frac{1}{3} = 4.33 \text{ years}$$ **Answer:** The payback period for Company XYZ's project is approximately 4.33 years. --- 2.b **Problem Statement:** Calculate the payback period for Company ABC Ltd's project costing 100,000 with annual returns of 20,000 for 10 years. 3.b **Calculation:** Since the project generates 20,000 per year, the payback period is: $$\frac{100,000}{20,000} = 5 \text{ years}$$ **Answer:** The payback period for Company ABC Ltd's project is 5 years. --- 2.c **Problem Statement:** State ratios of interest to Competitors, Government, and Trade Creditors with examples and reasons. 3.c **Competitors:** Interested in profitability ratios like Return on Sales (ROS) to compare performance and market position. 4.c **Government:** Interested in liquidity and solvency ratios like Current Ratio and Debt to Equity to assess tax compliance and financial stability. 5.c **Trade Creditors:** Interested in liquidity ratios such as Quick Ratio and Payables Turnover to evaluate the company's ability to pay debts on time. **Answer:** - Competitors: Profitability ratios (e.g., ROS) to gauge competitive strength. - Government: Liquidity and solvency ratios to ensure compliance and stability. - Trade Creditors: Liquidity ratios to assess creditworthiness.