Question

Project C will cost $30,000 and will generate $5,000 per year in new revenue. Project D will cost $120,000 and generate $50,000 per year in new revenue. Which is the better project from a payback period standpoint?

Answer 1

Answer:

Project D

Explanation:

Payback period calculates the amount of time it takes to recover the amount invested in a project.

Pay back period = Cost of project / revenue from project.

For project c, its Pay back period is $30,000 / $5,000 = 6 years

For project d, the Pay back period is $120,000 / $50,000 = 2.4 years

The project with the shorter Pay back period is better

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