Year | Cash flows | Cumulative Cash flows |
0 | (226000) | (226000) |
1 | 64900 | (161100) |
2 | 83100 | (78000) |
3 | 140100 | 62100 |
4 | 121100 | 183200 |
5 | 80300 | 263500 |
Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).
=2+(78000/140100)
=2.56 years(Approx).
Hence since payback is greater than 2.5 years;project must be rejected.
Suppose your firm is considering investing in a project with the cash flows shown below, that...
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