Answer:
Both projects fall within the acceptable payback period, so, both projects can be accepted.
Explanation:
Cash payback period measures how long it takes for the amount invested in a project to be recovered from the cumulative cash flows.
Pay back period For project A:
Amount invested in the project = −$ 62,000
Amount recovered in year 1 = −$ 62,000 + 7,100 = $-54,900
Amount recovered in year 2 = $-54,900 + 9,800 = $-45,100
Amount recovered in year 3 = $-45,100 + 28,700 = $-16,400
Amount recovered in year 4 = $-16,400 + 45,900 = $29,500
The amount is recovered In 3 years + 16400 / 45900 = 3.36 years
Cash payback period for project B:
Amount invested in the project = −$ 26,000
Amount recovered in year 1 = −$ 26,000 + 15,600 = $-10,400
Amount recovered in year 2 = $-10,400 + 8,400 = $-2000
Amount recovered in year 3 = $-2000 + 1,900 = $-100
Amount recovered in year 4 = $-100 + 1,100 = $1000
The amount invested is recovered In 3 years + 100/1,100 = 3.09 years.
Both projects fall within the acceptable payback period, so, both projects can be accepted.
I hope my answer helps you
