Homework Sourserev 09182012 Consider the following two mutually exclusive p
rev: 09_18_2012
| Consider the following two mutually exclusive projects: |
Solution
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)]
a) Payback Period =
= 3 + (70204 / 395000)
= 3.18
Hence the correct answer is 3.18 Years
b) Payback = 2 + (1635 / 13855)
= 2.12 Years
Hence the correct answer is 2.12 Years
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)]
= 3 + ( 86,318.14 /312,877)
= 3.28 Years
Hence the correct answer is 3.28 Years
d) Discounted Payback Period = 2 + (2907.45 / 11,633)
= 2.25 years
Hence the correct answer is 2.25 Years
| Year | Investment | Cash Inflow | Net Cash Flow | |
| 0 | -2,04,104 | - | -2,04,104.00 | (Investment + Cash Inflow) |
| 1 | - | 26,900 | -1,77,204.00 | (Net Cash Flow + Cash Inflow) |
| 2 | - | 51,000 | -1,26,204.00 | (Net Cash Flow + Cash Inflow) |
| 3 | - | 56,000 | -70,204.00 | (Net Cash Flow + Cash Inflow) |
| 4 | - | 3,95,000 | 3,24,796.00 | (Net Cash Flow + Cash Inflow) |
