Homework SourseYear Cash Flow A Cash Flow B 0 234478 14554 1 26800 4132 2 6
| Year | Cash Flow (A) | Cash Flow (B) |
| 0 | –$234,478 | –$14,554 |
| 1 | 26,800 | 4,132 |
| 2 | 60,000 | 8,022 |
| 3 | 53,000 | 13,389 |
| 4 | 391,000 | 9,123 |
Solution
a) Payback Period = ( Last Year with a Negative Cash Flow ) + [( Absolute Value of negative Cash Flow in that year)/ Total Cash Flow in the following year)]
The payback period for Project A=
= 3 + ( 94,678 / 391,000)
= 3.24 years
Hence, the correct answer is 3.24 years
b) The payback period for Project B=
= 2+ ( 2400 / 13389)
= 2.18 years
Hence the correct answer is 2.18 Years
Note :
c)
Discounted Payback Period =
( Last Year with a Negative Cumulative Cash Flow ) + [( Absolute Value of negative Cumulative Cash Flow in that year)/ Total Present Cash Flow in the following year)]
The discounted payback period for Project A =
= 3 + ( 111,295.37/ 309,709)
= 3.36 years
Hence the correct asnwer is 3.36 years
d) The discounted payback period for Project B = 2 + (3516.34 / 11242)
= 2.31 Years
Hence the correct answer is 2.31 Years
| Year | Investment | Cash Inflow | Net Cash Flow | |
| 0 | -2,34,478.00 | - | -2,34,478.00 | (Investment + Cash Inflow) |
| 1 | - | 26,800 | -2,07,678.00 | (Net Cash Flow + Cash Inflow) |
| 2 | - | 60,000 | -1,47,678.00 | (Net Cash Flow + Cash Inflow) |
| 3 | - | 53,000 | -94,678.00 | (Net Cash Flow + Cash Inflow) |
| 4 | - | 3,91,000 | 2,96,322.00 | (Net Cash Flow + Cash Inflow) |
