Question

Bronco, Inc., imposes a payback cutoff of three years for its international investment projects. Year Cash Flow (A) Cash Flow (B) 0 –$ 54,000 –$ 64,000 1 20,000 12,000 2 22,000 15,000 3 18,000 20,000 4 5,000 224,000 What is the payback period for both projects? (Round your answers to 2 decimal places, e.g., 32.16.)

Answer 1

Project A:

Payback Period = Years before full recover + (Un-recovered cash inflow at start of the year/cash flow during the year)

= 2 Year + ($12,000 / $18,000)

= 2 Year + 0.67 years

= 2.67 Years

Payback Period - PROJECT A = 2.67 Years

Project B:

Payback Period = Years before full recover + (Un-recovered cash inflow at start of the year/cash flow during the year)

= 3 Year + ($17,000 / $224,000)

= 3 Year + 0.08 years

= 3.08 Years

Payback Period - PROJECT B = 3.08 Years