Toolkit Decision Rules PBAK IRR NPV Calculate Payback You

Toolkit – Decision Rules – PBAK, IRR, NPV) Calculate Payback – Your boss has given you the green light to spend up to $5,000 on upgrade projects without consulting him as long as the payback period is less then 3 years. Happy with being given this greater responsibility, you are not asked by your team to consider a $5K expenditure on a new piece of equipment that will save $3,000 per year over the next three years. What is the payback period and do you go ahead with the project?

Question 12 options:

< 2 years, yes

>3 years, yes

< 2 years, no

3 years, no

Solution

Payback period =Initial investment /cash flow

                 = 5000 /3000

                   = 1.67 years

since the payback period is less than the required period of 3 years ,project should be accepted .

correct option is A\" less than 2 years , yes