Question

Global Toys, Inc., imposes a payback cutoff of three years for its international investment projects. Assume the company has the following two projects available. Year Cash Flow Cash Flow B 1 WN - O - 46,000 - 91,000 17,500 19,500 23,600 24,500 19,500 34,500 5,500 249,000 Requirement 1: What is the payback period for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) Project A Project B Payback period years years Requirement 2: Should it accept either of them? (Click to select

Answer 1

Payback period for Project A

- 46000. Cashflow

1. 17500. = -28500 ( -46000 + 17500)
2. 23600. = -5000. ( -28500 + 23600)
3. 19500. = 14500. (-5000 + 19500)
4. 5500. = 20000. (14500 + 5500)

Project A has a profit of 20000

Hence, the payback period for project A is

2 years 2.5 months.

Payback period for Project B

-91000. Cashflow

1. 19500. = - 71500. (-91000 + 19500)
2. 24500. =. -47000. (-71500 + 24500)
3. 34500. =. -12500. (-47000 + 34500)
4. 249000. =. 236500.(-12500+249000)

Project B has a profit of 236500

And a payback period of

3 years 1 month. (Approx)

So, we would accept project B because it gives the higher profit then project A .