Question

Year	Cash Flow
0	–$	8,300
1		2,100
2		3,000
3		2,300
4		1,700

What is the payback period for the set of cash flows given above? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32. Bronco, Inc., imposes a payback cutoff of three years for its international investment projects. Year Cash Flow (A) Cash Flow (B) 0 –$ 35,000 –$ 45,000 1 12,000 11,000 2 17,000 13,000 3 14,000 16,000 4 9,000 255,000 What is the payback period for both projects? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Answer 1

1.

Year	Cash Flow	Cumulative Cash flow
0	$    (8,300)	$                            (8,300)
1	$      2,100	$                            (6,200)
2	$      3,000	$                            (3,200)
3	$      2,300	$                                (900)
4	$      1,700	$                                  800

Payback period = 3 + ($900/$1,700)

Payback period = 3.53 Years

2.

	Project A		Project B
Year	Cash Flow	Cumulative Cash flow	Cash Flow	Cumulative Cash flow
0	$ (35,000)	$                          (35,000)	$ (45,000)	$                          (45,000)
1	$    12,000	$                          (23,000)	$    11,000	$                          (34,000)
2	$    17,000	$                            (6,000)	$    13,000	$                          (21,000)
3	$    14,000	$                               8,000	$    16,000	$                            (5,000)
4	$      9,000	$                            17,000	$ 255,000	$                          250,000

Payback period	2+($6,000/$14,000)	3+($5,000/$255,000)
Payback period	2.43 Years	3.02 Years

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