Question

what are the payback periods for b,c, and d? should they be accepted or rejected?

%B9-1 (static) I Question Help Payback period. Given the cash flow of four projects ABC, and the following table and using the payback period decision model, which projects do you accept and which projects do you reject you have a 3 year cutoff period for recapturing the initial cash outflow? For payback period calculations, assume that the cash flow is equally dibuted over the year What is the payback period for project A? 2.5 years (Round to two decimal places) 0 Data Table with a 3-year cu o period for recapturing the cash outfow. project would be accepted What is the payback period for project B? Click on the following icon in order to copy its contents into a spreadsheet.) years (Round to two decimal places.) Cash Flow $100.000 $4.000 $10.000 $14,000 Cash flow your $15,000 Print Done Enter your answer in the answer box and then click Check Answer

Answer 1

With payback period decision model

CUT OFF IS 3 YEARS

FOR

b) Initial cash outflow = $25,000

Cash flow YEAR 1 = $2000

YEAR 2 = $ 8000

YEAR 3 = $ 14000

YEAR 4 = $ 20000

PAYBACK PERIOD = PYFR +BA/ CIYER

PYFR = NUMBER OF YEARS IMMEDIATELY PRECEDING THE YEAR OF FINAL RECOVERY

BA = BALANCE AMOUNT TO BE RECOVERED

CIYER = CASH INFLOW( YEAR OF FINAL RECOVERY)

THEREFORE, 3 + 1000/ 20000 = 3+.05 =3.05 YEARS IS THE PAYBACK PERIOD AND THIS REJECTED

c) Initial cash outflow = $ 45,000

cash flow YEAR 1= $$10,000

YEAR 2 = $15,000

YEAR 3 = $ 20,000

BY APPLYING FORMULA, WE GET 2 + 20000/ 20000 = 2+1 = 3 YEARS, THIS IS ACCEPTED

d) Initial cash flow =$ 1,00,000

YEAR 1= $ 40,000

YEAR 2 = $ 30,000

YEAR 3= $ 20,000

YEAR 4 = $ 10,000

BY APPLYING FORMULA, WE GET, 3+10,000/10,000 = 3+1= 4 YEARS, THIS IS ALSO REJECTED