Question

Stenson, Inc., imposes a payback cutoff of three years for its international investment projects. Assume the company has the following two projects available. Stenson, Inc., imposes a payback cutoff of three years for its international investment projects. Assume the company has the following two projects available. Year Cash Flow A Cash Flow B 0 $ 61,000 $ 106,000 25,000 27,000 32,600 32,000 27,000 27,000 13,000 234,000 mt What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Project A Project B years years Which, if either, project(s) should the company accept?

Answer 1

Project Amount recovered in two year = 25000 + 32600 = 57600 Amount not recovered = 61000- 57600 - 3400 This remaining amount will be - 3400 srecovered in = .13 year a fooo : Payback =2 t. 13 = 2.13 years. Project B Amount recovered in three year=27000 + 32000 + 27000 86000 Remaining amount = 106000 - 86000 = 20000 s remaining amount will be recovered in 200oo 234000 : - 09 year Payback = 3+.09 = 3.09 years Cutoff Company pay back = 3 will accept year project A.