
Cash flow 
0 
5,500 
1 
2,000 
2 
3,000 
3 
1,000 
4 
2,000 
a.
Year  Cash flows  Cumulative Cash flows 
0  (5500)  (5500) 
1  2000  (3500) 
2  3000  (500) 
3  1000  500 
4  2000  2500 
Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).
=2+(500/1000)=2.5 years
Hence since payback is less than 3 years;project should be accepted.
2.
Year  Cash flows  Present value@10%  Cumulative Cash flows 
0  (5500)  (5500)  (5500) 
1  2000  1818.18  (3681.82) 
2  3000  2479.34  (1202.48) 
3  1000  751.31  (451.17) 
4  2000  1366.03  914.86(Approx). 
Hence discounted payback=3+(451.17/1366.03)
=3.33 years
Hence since discounted payback is greater than 3 years;project should be rejected.
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