Question

# Assume a \$100,000 investment and the following cash flows for two alternatives. Year Investment A Investment...

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.)

 Inv A Year Cash flow stream Cumulative cash flow 0 -100000 -100000 1 30000 -70000 2 35000 -35000 3 25000 -10000 4 20000 10000 5 15000 25000
 Payback period is the time by which undiscounted cashflow cover the intial investment outlay this is happening between year 3 and 4 therefore by interpolation payback period = 3 + (0-(-10000))/(10000-(-10000)) 3.5 Years
 Inv B Year Cash flow stream Cumulative cash flow 0 -100000 -100000 1 45000 -55000 2 30000 -25000 3 50000 25000
 Payback period is the time by which undiscounted cashflow cover the intial investment outlay this is happening between year 2 and 3 therefore by interpolation payback period = 2 + (0-(-25000))/(25000-(-25000)) 2.5 Years