Homework Answers
Calculation of Payback period
Project A = 2 years
Project B = 3 years
| Year | A | Cumm | B | Cumm |
| 0 | -$4000 | -$4000 | -$4000 | -$4000 |
| 1 | $2000 | -$2000 | $1000 | -$3000 |
| 2 | $2000 | 0 | $1000 | -$2000 |
| 3 | $500 | $500 | $2000 | 0 |
| 4 | $500 | $1000 | $2000 | $2000 |
Project A is selected based on the Pay back method. If Project A is selected on the basis of the Pay back method the value forgone is $1000 ($2000 - $1000).
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