Question

Compute the payback statistic for Project B if the appropriate cost of capital is 10 percent and the maximum allowable payback period is three years. (If the project never pays back, then enter a "0" (zero).) Project B Time: 0 1 2 3 4 5 Cash flow: –$13,000 $3,550 $4,580 $1,920 $0 $1,400

Answer 1

Answer:

Rejected

Explanation:

The computation of the payback period is shown below:

In year 0 = -$13,000

In year 1 = $3,550

In year 2 = $4,580

In year 3 = $1,920

In year 4 = $0

In year 5 = $1,400

If we sum the first 5 year cash inflows than it would be $11,450

And, the initial investment is $13,000

So, in 5 years, it cannot be recovered. Hence, this project is rejected