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: 0 1 2 3 4 5
Cash flow: –$1,600 $590 $660 $640 $420 $220
Should the project be accepted or rejected?

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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?