Question

YEAR	PROJECT A	PROJECT B	PROJECT C
2018	($3,000,000)	($3,000,000)	($3,200,000)
2019	$0	$975,000	$985,000
2020	$600,000	$975,000	$925,000
2021	$900,000	$975,000	$1,000,000
2022	$3,000,000	$1,000,000	$950,000

PLEASE calculate the Payback method for each and show me how you got to the answer!!

Answer 1

Cash outflows :
Project A	3000000
Project B	3000000
Project C	3200000

Year	Project A		Project B		Project C
	Cash inflows	Cumulative cash inflows	Cash inflows	Cumulative cash inflows	Cash inflows	Cumulative cash inflows
1	0	0	975000	975000	985000	985000
2	600000	600000	975000	1950000	925000	1910000
3	900000	1500000	975000	2925000	1000000	2910000
4	3000000	4500000	1000000	3925000	950000	3860000

Payback period = Number of years before full recovery + ( Unrecovered amount at the start of the year / Cash flow during the year )

Project A = 3 years + ( 1500000 / 3000000 ) = 3 years + 0.5 years = 3.5 years = 3 years and 6 months

Project B = 3 years + ( 75000 / 1000000 ) = 3 years + 0.08 years = 3.08 years = 3 years and 0.96 months

Project C = 3 Years + ( 290000 / 950000 ) = 3 Years + 0.31 years = 3.31 years = 3 years and 3.72 months

For calculating months multiply the fraction by 12 ( e.g. 3.5 years = 3 years and 0.5*12 months = years and 6 months

In the absence of any information regarding rounding off the answers are rounded off to 2 decimal places.