Payback Period: Initial Investment Year 1 Cash Inflow Year 2 Cash Inflow Year 3 Cash Inflow...
Payback Period:
|
Initial Investment |
Year 1 Cash Inflow |
Year 2 Cash Inflow |
Year 3 Cash Inflow |
Year 4 Cash Inflow |
Year 5 Cash Inflow |
|
|
Project A |
100,000 |
10,000 |
10,000 |
20,000 |
30,000 |
30,000 |
|
Project B |
200,000 |
50,000 |
60,000 |
90,000 |
60,000 |
60,000 |
- In years, what is the payback period for Project A?
- In years, what is the payback period for Project B?
- Based on payback period, which project would you recommend for your company to pursue?
|
Initial Investment |
1st Year Cash Inflow |
Quarterly Cash Inflow after 1st Year |
|
|
Project C |
250,000 |
50,000 |
25,000 |
|
Project D |
150,000 |
30,000 |
20,000 |
- In months, what is the payback period for Project C?
- In months, what is the payback period for Project D?
- Based on payback period, which project would you recommend for your company to pursue?
if you can detail the month project payback period calcuations i would appreciate it
Homework Answers
Pay Back Period is the method of capital budgeting in which we calculate for the business time period of recoup of its investment.
If there is even cash flow then we simply divide the initial investment by cash flow we get the pay back period but if the cash flow is uneven then the calculation is done as shown below in the figure.
It is helpful in finding out the appropriate business project among number of projects.
The project C has pay back period of 3 years whereas project D has pay back period of 2 years and in between 4 to 5 months. So, the project D has the less payback period hence, this project is recommended to pursue.
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Year 1
Cash Inflow
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