Payback period. Given the cash flow of two projects—A and B—and using the payback period decision model, which project(s) do you accept and which project(s) do you reject if you have a three-year cutoff period for recapturing the initial cash outflow? For payback period calculations, assume that the cash flow is equally distributed over the year. Cash Flow A B Cost $14,000 $110,000 Cash flow year 1 $5,600 $44,000 Cash flow year 2 $5,600 $33,000 Cash flow year 3 $5,600 $22,000 Cash flow year 4 $5,600 $11,000 Cash flow year 5 $5,600 $0 Cash flow year 6 $5,600 $0
Payback period. Given the cash flow of two projects—A and B—and using the payback period decision model, which project(s) do you accept and which project(s) do you reject if you have a three-year cutoff period for recapturing the initial cash outflow? For payback period calculations, assume that the cash flow is equally distributed over the year. Cash Flow A B Cost $14,000 $110,000 Cash flow year 1 $5,600 $44,000 Cash flow year 2 $5,600 $33,000 Cash flow year 3 $5,600 $22,000 Cash flow year 4 $5,600 $11,000 Cash flow year 5 $5,600 $0 Cash flow year 6 $5,600 $0
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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Question
Payback
period.
Given the cash flow of two
projects—A
and
B—and
using the payback period decision model, which project(s) do you accept and which project(s) do you reject if you have a three-year cutoff period for recapturing the initial cash outflow? For payback period calculations, assume that the cash flow is equally distributed over the year.|
Cash Flow
|
A
|
B
|
|
|
|
Cost
|
$14,000
|
|
$110,000
|
|
|
Cash flow year 1
|
$5,600
|
|
$44,000
|
|
|
Cash flow year 2
|
$5,600
|
|
$33,000
|
|
|
Cash flow year 3
|
$5,600
|
|
$22,000
|
|
|
Cash flow year 4
|
$5,600
|
|
$11,000
|
|
|
Cash flow year 5
|
$5,600
|
|
$0
|
|
|
Cash flow year 6
|
$5,600
|
|
$0
|
|
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