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Consider the following two mutually exclusive projects:    Year Cash Flow (A) Cash Flow (B) 0 –$261,339        –$15,269          1 25,300        4,848          2 52,000...

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Finance

Consider the following two mutually exclusive projects:

  

YearCash Flow (A)Cash Flow (B)
0–$261,339       –$15,269         
125,300       4,848         
252,000       8,223         
354,000       13,542         
4406,000       9,270         

  

Whichever project you choose, if any, you require a 6 percentreturn on your investment.
Required:
(a)What is the payback period for Project A?

   

(b)What is the payback period for Project B?


(c)What is the discounted payback period for Project A?

Answer & Explanation Solved by verified expert
4.0 Ratings (787 Votes)
a Project A Year Cash flow stream Cumulative cash flow 0 261339 261339 1 25300 236039 2 52000 184039 3 54000 130039 4 406000 275961 Payback period is the time by which undiscounted cashflow cover the intial investment outlay this is happening between year 3 and 4    See Answer
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Consider the following two mutually exclusive projects:  YearCash Flow (A)Cash Flow (B)0–$261,339       –$15,269         125,300       4,848         252,000       8,223         354,000       13,542         4406,000       9,270           Whichever project you choose, if any, you require a 6 percentreturn on your investment.Required:(a)What is the payback period for Project A?   (b)What is the payback period for Project B?(c)What is the discounted payback period for Project A?

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