Question

Payback Period:

	Initial Investment	Year 1 Cash Inflow	Year 2 Cash Inflow	Year 3 Cash Inflow	Year 4 Cash Inflow	Year 5 Cash Inflow
Project A	100,000	10,000	10,000	20,000	30,000	30,000
Project B	200,000	50,000	60,000	90,000	60,000	60,000

1. In years, what is the payback period for Project A?
2. In years, what is the payback period for Project B?
3. Based on payback period, which project would you recommend for your company to pursue?

	Initial Investment	1st Year Cash Inflow	Quarterly Cash Inflow after 1st Year
Project C	250,000	50,000	25,000
Project D	150,000	30,000	20,000

1. In months, what is the payback period for Project C?
2. In months, what is the payback period for Project D?
3. Based on payback period, which project would you recommend for your company to pursue?

if you can detail the month project payback period calcuations i would appreciate it

Answer 1

Pay Back Period is the method of capital budgeting in which we calculate for the business time period of recoup of its investment.

If there is even cash flow then we simply divide the initial investment by cash flow we get the pay back period but if the cash flow is uneven then the calculation is done as shown below in the figure.

It is helpful in finding out the appropriate business project among number of projects.

The project C has pay back period of 3 years whereas project D has pay back period of 2 years and in between 4 to 5 months. So, the project D has the less payback period hence, this project is recommended to pursue.