Question

(Payback period Calculations) You are considering three independent projects:project A, project B, and project C. Given the following cash flow information, calculate the payback period for each. if you require a 3-year payback before an investment can be accepted, which project(s) would be accepted?

	Project A	Project B	Project C
Initial Outlay	-$1,000	-$9,000	-$6,500
Inflow year 1	700	5,000	2,000
Inflow year 2	300	2,000	2,000
Inflow year 3	200	2,000	3,000
Inflow year 4	100	2,000	3,000
Inflow year 5	400	2,000	3,000

1) What is the payback period of project A?

2) What is the payback period of project B?

3) What is the payback period of project C?

Which project(s) would be accepted

Answer 1

Solution Project A cumulative Project B cumulative Project C cumulative Initial Outlay -1,000 -1,000 -9,000 9,000 -6,500 -6,500 Inflow year 1 Inflow year 2 |Inflow year 3 | Inflow year 4 700 -300 2,000 5,000 4,000 -4,500 300 0 2,000 -2,000 2,000 -2,500 200 200 3,000 500 2,000 0 100 300 2,000 3,500 2,000 3,000 Inflow year 5 400 700 2,000 4,000 3,000 6,500 Payback period A в 2.00 Years 3.00 Years 2.83 Years C Accept project A,B & Cas all have payback period within 3 years.