Homework Answers
pay back period can be calculated as follows
Project A
| year | Total flow | cumulative flow | |
| 0 | (20000) | (20000) | |
| 1 | 23000 | 3000 | |
| 2 | 10000 | 13000 | |
| 3 | 10000 | 23000 |
Select the year with last negative outflow
It is in the zero year as per table above
Devide the last negative outflow by the inflows of the consecutive year
that is = 20000/23000 =0.87
Therefore pay back period = 0+0.87 =0.87
Project B
Cost of the project is 20000
First year inflow is 20000
therefore pay back period is oe year
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