In: Finance
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively.
Time:012345
Cash flow:–$235,000 $65,800 $84,000 $141,000 $122,000 $81,200
Compute payback in Years
Payback period | ||
Time | Cash Outflow | Cumulative |
- | (235,000.00) | (235,000.00) |
1.00 | 65,800.00 | (169,200.00) |
2.00 | 84,000.00 | (85,200.00) |
3.00 | 141,000.00 | 55,800.00 |
4.00 | 122,000.00 | 177,800.00 |
5.00 | 81,200.00 | 259,000.00 |
Payback period = 2+ 85,200/141,000 | ||
Payback period = 2+ .60 Years | ||
Payback period = 2.60 Years | ||
Project should be accepted as maximum allowable payback was 3 Years |