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Compute the payback statistic for Project B if the appropriate cost of capital is 12 percent and the maximum allowable paybac
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SOLUTION:-

Year Cash flows Cumulative Cash flows
0 (11000) (11000)
1 3350 (7650)
2 4180 (3470)
3 1520 (1950)
4 0 (1950)
5 1000 (950)

Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).

=0.

Hence since project never pays back;project must be rejected.

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