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Ch.15_101_004. Proposals L and K each cost $500,000, have 6-year lives, and have expected total cash flows of $750,000. Propo

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Answer #1

Cash pay back period:

Proposal L = $500,000 - $125,000 - $125,000 - $125,000 - $125,000 = $0

Proposal L cash pay back period is 4 year.

Proposal K = $500,000 - $250,000 - $200,000 = $50,000

In year 3, $50,000 should be earned. Time required = $50,000 / $100,000 = 0.5

Proposal K cash pay back period is 2.50 years.

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