Problems

These problems are available in MyFinanceLab

  1. Payback period. Given the cash flow of four projects—A, B, C, and D—and using the payback period decision model, which projects do you accept and which projects do you reject if you have a three-year cutoff period for recapturing the initial cash outflow? For payback period calculations, assume that the cash flow is equally distributed over the year.

    Cash Flow A B C D
    Cost $10,000 $25,000 $45,000 $100,000
    Cash flow year 1 $ 4,000 $ 2,000 $10,000 $ 40,000
    Cash flow year 2 $ 4,000 $ 8,000 $15,000 $ 30,000
    Cash flow year 3 $ 4,000 $14,000 $20,000 $ 20,000
    Cash flow year 4 $ 4,000 $20,000 $20,000 $ 10,000
    Cash flow year 5 $ 4,000 $26,000 $15,000 $      0
    Cash flow year 6

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