Question

Show formula for immediate calc for payback (how the payback is calculated) with the answer

f.   What is the regular payback period for these two projects?
WACC:12%
Project A
	Time period	0	1	2	3	4	5	6	7
	Cash flow	(375)	(300)	(200)	(100)	600	600	926	(200)
	Cumulative cash flow	-$375	-$675	-$875	-$975	-$375	$225	$1,151	$951
Intermediate calculation for payback
Payback using intermediate calculations		4.625
Project B
	Time period	0	1	2	3	4	5	6	7
	Cash flow	-$575	$190	$190	$190	$190	$190	$190	$0
	Cumulative cash flow	-$575	-$385	-$195	-$5	$185	$375	$565	$565
Intermediate calculation for payback
Payback using intermediate calculations		3.026
	Payback using PERCENTRANK	3.026	Ok because cash flows follow normal pattern.

Answer 1

CACULATION OF SIMPLE PPAYBACK PERIOD OF PROJECT A
Answer = A)
Years	Particulars	Inflow (Outflow)	Cumulative Value
0	Outflow	$                         -375	$                   -375.00
1	Outflow	$                         -300	$                   -675.00
2	Outflow	$                         -200	$                   -875.00
3	Inflow	$                         -100	$                   -975.00
4	Inflow	$                           600	$                   -375.00
5	Inflow	$                           600	$                     225.00
6	Inflow	$                           926	$                 1,151.00
7	Outflow	$                         -200	$                     951.00
In year 5 all amount is collected, but whole year is not required.
So we required only $ 375 in 5th Year
Payback Period = 4 Years +		$                     375.00	"/ " By	$            600.00
Payback Period = 4 Years +		0.625	Years
Payback Period = 4.625 Years
CACULATION OF SIMPLE PPAYBACK PERIOD OF PROJECT B
Years	Particulars	Inflow (Outflow)	Cumulative Value
0	Outflow	$                         -575	$                   -575.00
1	Outflow	$                           190	$                   -385.00
2	Outflow	$                           190	$                   -195.00
3	Inflow	$                           190	$                        -5.00
4	Inflow	$                           190	$                     185.00
5	Inflow	$                           190	$                     375.00
6	Inflow	$                           190	$                     565.00
7	Outflow	$                              -	$                     565.00
In year 4 all amount is collected, but whole year is not required.
So we required only $ 5 in 4th Year
Payback Period = 3 Years +		$                         5.00	"/ " By	$            190.00
Payback Period = 3 Years +		0.026	Years
Payback Period = 3.026 Years