Question

Elysian Fields, Inc., uses a maximum payback period of 6 years and currently must choose between two mutually exclusive projects. Project Hydrogen requires an initial outlay of $29,000; project Helium requires an initial outlay of $32,000. Using the expected cash inflows given for each project in the following table, EEB, calculate each project's payback period. Which project meets Elysian's standards? The payback period of project Hydrogen is years. (Round to two decimal places.) The payback period of project Helium is years. Round to two decimal places.) Which project meets Elysian's standard? (Select the best answer below.) O O O Both projects are acceptable because their payback periods are less than the 6 years criterion. Only project Hydrogen meets Elysian's standard Only project Helium meets Elysian's standard Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Expected cash inflows Helium $7,500 $7,000 $7,500 $6,000 $4,500 $3,000 Year Hydrogen $6,000 $6,000 $8,500 $4,500 $2,500 $3,000 4

Answer 1

As the question is of payback period with uneven cash inflows, we will first calculate cumulative cash flows for both the projects and then the year in which we are fully recovering our cash outlay will be taken as the current year. Now, our cash outlay has been realized somewhere between the current year and the year preceding the current year, so we will use the following formula to calculate the exact payback period:

Pay back period = Last year wtih negative net cash flow + (Initial Investment - Cumulative cash inflow of last year)

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Cash inflow of current year

1.

6000 6000 1200口 $ 50D 20500 多4500 25000 与600 3 5 2500 6 6 3000 30500 out . $ 29000 cauh This amneunt u raus, Hoxienex, 24000 i being sualised DueALd year will be caleulstd au follou + (hit al jn armer t-cumulate adu met Last at bauk pend ear wite the last 306OD bei ing btde period 말 Praj ut ptdromu -5.5.leau

2.

aabuk pewiod叶鬥ee 2 1000 4 1500 600D 22,000 28,000 32,500 3S,SOD S 4500 = 32,000 = u+ ( 32,000-28000 0.8 4.29 Hune, both pwopsta me acephaile wause kain pabauk povink ade period SS bave pextod 4.89 yare