Question

Bronco, Inc., imposes a payback cutoff of three years for its international investment projects. Year 0 1 Cash Flow (A) Cash Flow (B) -$54,000 $ 64,000 20,000 12,000 22,000 15,000 18,000 20,000 5,000 224,000 NM What is the payback period for both projects? (Round your answers to 2 decimal places, e.g., 32.16.) Project A Project B years years Which project should the company accept? Project A O Project B

Answer 1

a
Project A
Year	Cash flow stream	Cumulative cash flow
0	-54000	-54000
1	20000	-34000
2	22000	-12000
3	18000	6000
4	5000	11000
Payback period is the time by which undiscounted cashflow cover the intial investment outlay
this is happening between year 2 and 3
therefore by interpolation payback period = 2 + (0-(-12000))/(6000-(-12000))
2.67 Years
Accept project as payback period is less than 3 years
Project B
Year	Cash flow stream	Cumulative cash flow
0	-64000	-64000
1	12000	-52000
2	15000	-37000
3	20000	-17000
4	224000	207000
Payback period is the time by which undiscounted cashflow cover the intial investment outlay
this is happening between year 3 and 4
therefore by interpolation payback period = 3 + (0-(-17000))/(207000-(-17000))
3.08 Years
Reject project as payback period is more than 3 years

Please ask remaining parts seperately, questions are unrelated