Question

Payback period. What are the payback periods of projects E and F in the following table:93: ? Assume all the cash flow is evenly spread throughout the year. If the cutoff period is 3 years, which project(s) do you accept? What is the payback period for project E? Data Table years (Round to one decimal place.) (Click on the following icon in order to copy its contents into a spreadsheet.) Cash Flow Cost Cash flow year 1 Cash flow year 2 Cash flow year 3 Cash flow year 4 Cash flow year 5 Cash flow year 6 E $40,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 FO F $95,000 $38,000 $28,500 $19,000 $9,500 $0 Print #2 (Alt + A) Done

Answer 1

Payback period is the period in which initial investment is recovered.

PBP = Initial Investment / CF per anum

= $ 40000 / $ 10000

= 4 Years.

Expected Payback Period is 3 Years. Hence Project is rejected.