Question

Stenson, Inc., imposes a payback cutoff of three years for its international investment projects. Assume the company has the following two projects available. 0 Year Cash Flow A Cash Flow B -$58,000 -$103,000 23,500 25,500 30.800 30,500 25,500 28,500 4 11,500 237,000 What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) years Project A Project B years Which, if either project(s) should the company accept? Accept both Projects A and B Accept Project A and reject Project B rent Drniart and react Deniart

Answer 1

Year 0 Project A Project B Cashflows Cumulative cash Cashflows Cumulative cashflow $ (58,000.00) $ (58,000.00) $ (103,000.00) $ (103,000.00) | $ 23,500.00 $ (34,500.00) $ 25,500.00 $ $ 30,800.00 $ (3,700.00) $ 30,500.00 $ (47,000.00) $ 25,500.00 $ 21,800.00 $ 28,500.00 $ (18,500.00) $ 11,500.00 $ 33,300.00 $ 237,000.00 $ 218,500.00 2 3 4 Payback period 2+3700/25500 2.15 3+18500/237000 3.08 Years Years Payback period 2.15 3.08 Project A Project B Years Years