Question

Engineering Economics GENG 315 The Payback Period Method TABLE 5-2 hiple Pay THE P PeTodan IERRE Column 1 End of Yeark Column 2 Net Cash Flow -$25,000 8,000 8,000 8.000 8,000 13,000 Column 3 cun ulative PW 09/yr through Yeark 5.OOO 17.000 0.000 1.000 7.000 Column 4 Column 5 PW of CumulativePW Cash Flow 209 at 20%/yrthroughYeark $25,000 -$25,000 6,667 -18,333 5,556 12,777 4.630 8.147 3,858 -4,289 5,223 +934 NG 4 years beca cumulative balance tur positive at ΕΟΥ. 5 years because the cumulative discounted balance turns positive at FOY 5. Notice that for MARRO

find the payback period

Answer 1

:) Calculation & simple pay back penod Cost of the project = $25,000 Amount recovered in 3 years = $24,000 Balance amount - $1000 Payback period 2 3+ 1000 cash in loco og 400 year - 3+ 1000 8,000 23+0.125 = 3.125 years

Cdiscounted) calculation of discounted pay back period Cost of project - $25000 Amount recovered in 4 years =$20 711 Balance amount to be recovend = $4289 in 8th year cash inflow of 5th year $5223 (discounted) Payback period 4+4289 8223 = 4 +0:82 = 4082 years

554 Calculation of discounted cash flow Cost ge the project = $275,000 Amount recovered in 3 years = $153,668 Balance amount to be recovered Cdiscounted) $121,832 Cash inflow of 4th year = $183757 cdjo wunded) Payback period 3+ 121 332 188757 234 0.67 23.67 years