Question

In: Finance

Calculate the payback period for projects X and Y.  They both cost $100,000     (show your work) Year   0...

Calculate the payback period for projects X and Y.  They both cost $100,000     (show your work)

Year   0 1   2     3    4          5       6

Project X       $20m 30m     40m 20m    10m   10m

Project Y          $40m 30m 30m 20m 10m 0

Solutions

Expert Solution

Payback period = The year in which the cumulative cash flow was last negative + (the positive value of the cumulative cash flow in that year) / (cash flow in the next year)

Project X payback period = 0 + 100,000/20,000,000

Project X payback period = 0.005 Years

Screenshot with formulas

Project Y Payback Period = 0 + 100,000/40,000,000

Project Y Payback Period = 0.0025 Years

Screenshot with formulas


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