Question
Payback period . Given the cash flow of two projectslong dashA and Blong dashand using the payback period decision model, which project(s) do you accept
Payback period.
Given the cash flow of two projectslong dashA and Blong dashand using the payback period decision model, which project(s) do you accept and which project(s) do you reject if you have a 3-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 | $90,000 | |||
| Cash flow year 1 | $7,000 | $36,000 | |||
| Cash flow year 2 | $7,000 | $27,000 | |||
| Cash flow year 3 | $7,000 | $18,000 | |||
| Cash flow year 4 | $7,000 | $9,000 | |||
| Cash flow year 5 | $7,000 | $0 | |||
| Cash flow year 6 | $7,000 | $0 |
| ||
| What is the payback period for project A? | |||||
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