Question

Darla's Bakery Products, Inc., imposes a payback cutoff of 2.5 years for its investment project. If the company has the following two projects available, what is the payback period for each of these projects? Should they accept either of them? Year Cash Flow (A) - $25,000 15,000 9,000 3,000 3,000 Cash Flow (B) - $20,000 7,000 7,000 6,000 200,000

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Answer 1

cumulative cash flows YEAR -$25,000 $15,000 $9,000 $3,000 $3,000 -$20,000 $7,000 $7,000 $6,000 $200,000 -$25,000.00 -$10,000.00 -$1,000.00 $2,000.00 $5,000.00 -$20,000.00 $13,000.00 $6,000.00 $0.00 $200,000.00 A B Project's payback period = 3.00 2.33 2+(1000/3000) years Accept only A as with in cutoff period