In: Finance
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
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