**Learning Objective:**This lesson focuses on computing the payback period for Project B, given a specific cost of capital and a maximum allowable payback period. **Task Description:**Calculate the payback statistic for Project B under the following conditions: - The appropriate cost of capital is 12 percent.- The maximum allowable payback period is three years.- If the project never pays back within this timeframe, input "0" (zero).**Cash Flow Table for Project B:**| Time (Years) | Cash Flow ||--------------|-------------|| 0 | -$12,500 || 1 | $3,500 || 2 | $4,480 || 3 | $1,820 || 4 | $0 || 5 | $1,300 |**Instructions:**1. **Understand Cash Flows:** - Initial Investment at Year 0: -$12,500 - Positive Cash Flows from Year 1 to Year 5.2. **Calculate Payback Period:** - Determine how long it takes to recover the initial investment from the accumulated cash flows.3. **Determining if Payback Within Allowed Period:** - Compare the payback result with the maximum allowable period of three years. - Record "0" if the project does not recover the initial investment within this timeframe. This exercise is essential for evaluating project viability and understanding cash flow implications in capital budgeting decisions. **Title: Evaluating Project Approval****Content:**The key question for consideration is: "Should the project be accepted or rejected?"This inquiry prompts a detailed evaluation of project criteria, impact analysis, feasibility studies, and alignment with organizational goals. Prior to decision-making, it’s essential to examine all relevant data and stakeholder inputs to ensure an informed decision that aligns with strategic objectives.

Payback Period: It is the period in which the investment/project recovers the cost of investment.…

Compute the payback statistic for Project B if the appropriate cost of capital is 12 percent and the maximum allowable payback period is three years. (If the project never pays back, then enter a "0" (zero).)

Compute the payback statistic for Project B if the appropriate cost of capital is 12 percent and the maximum allowable payback period is three years. (If the project never pays back, then enter a "0" (zero).)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A project has an initial cost of $65,000, expected net cash inflows of $14,000 per year for 9 years, and a cost of capital of 12%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round intermediate calculations. Round your answer to the nearest cent

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