Question

Bronco, Inc., Imposes a payback cutoff of three years for Its International Investment projects. Year WNO Cash Flow (A) -$66,000 26,000 34,000 24,000 11,000 Cash Flow (B) $ 76,000 18,000 21,000 32,000 236,000 What is the payback period for both projects? (Round your answers to 2 decimal places, e.g., 32.16.) years Project A Project B years Which project should the company accept? O Project A O Project B

Answer 1

Payback Period is the time in which Initial Investment comes as cash inflows,

Payback period of Proect A = 1(26,000) + 1(34,000) + 0.18(6,000/34,000)

Payback period of Proect A = 2.18 years

Payback period of Proect B = 1(18,000) + 1(21,000) + 1(32,000) + 0.02(5,000/236,000)

Payback period of Proect B = 3.02 years

Project A should be chosen.