Question

Assume a $90,000 investment and the following cash flows for two alternatives.

Year | Investment A | Investment B | ||||

1 | $ | 30,000 | $ | 30,000 | ||

2 | 25,000 | 30,000 | ||||

3 | 20,000 | 40,000 | ||||

4 | 30,000 | — | ||||

5 | 25,000 | — | ||||

**a.** Calculate the payback for investment A and B.
**(Round your answers to 2 decimal places.)
Investment A_________years**

**investment B___________years**

**b.** Which investment would you select under the
payback method?

Investment A | |

Investment B |

**c.** If the inflow in the fifth year for Investment
A was $25,000,000 instead of $25,000, would your answer change
under the payback method?

Yes | |

No |

Answer #1

a | |||||

Year | Investment A | Cummulative cash flow | |||

1 | 30000 | 30000 | |||

2 | 25000 | 55000 | |||

3 | 20000 | 75000 | |||

4 | 30000 | 105000 | |||

5 | 25000 | 130000 | |||

Payback period = 3 years +(1 year *(90000-75000)/(105000-75000) | |||||

= | 3.5 | years | |||

Year | Investment A | Cummulative cash flow | |||

1 | 30000 | 30000 | |||

2 | 30000 | 60000 | |||

3 | 40000 | 100000 | |||

4 | 100000 | ||||

5 | 100000 | ||||

Payback period = 2 years +(1 year *(90000-60000)/(100000-75000) | |||||

= | 3.2 | Years | |||

b | |||||

Investment B as it has lower payback period | |||||

c | |||||

No, as the recovery is done in 4th years 5th year cash flow doesnot effect | |||||

Assume a $90,000 investment and the following cash flows for two
alternatives: Year Investment A Investment B 1 $25,000 $40,000 2
30,000 40,000 3 25,000 28,000 4 19,000 __Calculate the payback for
Investments A and B. If the inflow in the fifth year for Investment
A was $25,000,000 instead of $25,000, would your answer change
under the payback method?

Assume a $85,000 investment and the following cash flows for two
alternatives.
Year
Investment A
Investment B
1
$
25,000
$
35,000
2
25,000
35,000
3
25,000
20,000
4
20,000
—
5
20,000
—
a. Calculate the payback for investment A and B.
(Round your answers to 2 decimal places.)
b. Which investment would you select under the
payback method?
Investment A
Investment B
c. If the inflow in the fifth year for Investment
A was $20,000,000 instead...

Assume a $105,000 investment and the following cash flows for
two alternatives.
Year
Investment A
Investment B
1
$
45,000
$
55,000
2
30,000
30,000
3
15,000
25,000
4
30,000
—
5
10,000
—
a. Calculate the payback for investment A and B.
(Round your answers to 2 decimal places.)
b. Which investment would you select under the
payback method?
Investment A
Investment B
c. If the inflow in the fifth year for Investment
A was $10,000,000 instead...

Assume a $45,000 investment and the following cash flows for two
alternatives:
Year
Investment A
Investment B
1
$10,000
$10,000
2
15,000
15,000
3
15,000
30,000
4
15,000
—
5
3,900,000
—
Calculate the payback for investment A and B. (Round the
final answers to 2 decimal places.)
Payback period
Investment A
years
Investment B
years
Which of the alternatives would you select under the payback
method?
Investment A
Investment B

Assume a $100,000 investment and the following cash flows for
two alternatives. Year Investment A Investment B 1 $ 30,000 $
45,000 2 35,000 30,000 3 25,000 50,000 4 20,000 — 5 15,000 — a.
Calculate the payback for investment A and B. (Round your answers
to 2 decimal places.)

Assume a $70,000 investment and the following cash flows for two
alternatives.
Year
Investment A
Investment B
1
$
20,000
$
35,000
2
25,000
25,000
3
20,000
20,000
4
20,000
—
5
25,000
—
a. Calculate the payback for investment A and
B.

Assume a $55,000 investment and the following cash flows for two
alternatives.
Year
Investment X
Investment Y
1
$15,000
$25,000
2
25,000
25,000
3
10,000
15,000
4
20,000
—
5
20,000
—
a. Calculate the payback for investment X and Y.
(Do not round intermediate calculations. Round your answers
to 2 decimal places.)
investment X ________ years
investment Y ________ years

Assume a $72,000 investment and the following cash
flows for two alternatives.
year.
investment a.
investment b
1.
$25,000.
$22,000
2.
25,000.
15,000
3.
15,000.
50,000
4.
10,000.
--------
5.
30,000.
---------
calculate the payback for investment A and B

King Co. invests $105,000 and the following cash flows for two
investments:
Year
Investment A
Investment B
1
$30,000
$40,000
2
25,000
30,000
3
20,000
35,000
4
30,000
—
5
4,300,000
—
Calculate the payback period for investment A and B (in yrs)

assume a $42,000 investment and the following cash
flows for two alternatives.
year. investment
x. investment y
1.
$15,000.
$22,000
2.
14,000.
15,000
3.
10,000.
10,000
4.
15,000.
----
5.
20,000.
------
calculate the payback for investment x and y.

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