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Compute the payback statistic for Project A if the appropriate cost of capital is 8 percent...

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Finance

Compute the payback statistic for Project A if the appropriatecost of capital is 8 percent and the maximum allowable paybackperiod is four years. (Round your answer to 2 decimalplaces.)

Project A
Time:012345
Cash flow:–$1,600$590$660$640$420$220

Should the project be accepted or rejected?

Answer & Explanation Solved by verified expert
4.4 Ratings (746 Votes)

Payback period is the time within which cost of project is recovered back.
It does not consider time value of money.
Year Cash flow Cumulative cash flow
0 $       -1,600 $    -1,600
1 590        -1,010
2 660            -350
3 640              290
4 420              710
5 220              930
Payback period = 2+(350/640)
=           2.55 Years
Payback period is within maximum allowable payback period.
So, this project is acceptable.

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Compute the payback statistic for Project A if the appropriatecost of capital is 8 percent and the maximum allowable paybackperiod is four years. (Round your answer to 2 decimalplaces.)Project ATime:012345Cash flow:–$1,600$590$660$640$420$220Should the project be accepted or rejected?

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