A company is considering two projects.
$$\begin{array} { l l l }
& \text { Project A } & \text { Project B } \
\text { Initial investment } & \$ 150,000 & \$ 150,000 \
\text { Cash inflow Year 1 } & \$ 50,000 & \$ 40,000 \
\text { Cash inflow Year 2 } & \$ 50,000 & \$ 40,000 \
\text { Cash inflow Year 3 } & \$ 50,000 & \$ 40,000 \
\text { Cash inflow Year 4 } & \$ 50,000 & \$ 60,000 \
\text { Cash inflow Year 5 } & \$ 50,000 & \$ 80,000
\end{array}$$
-Refer to the Figure.What is the payback period for Project A?

Question

A company is considering two projects.
 $$\begin{array} { l l l } 
& \text { Project A } & \text { Project B } \
\text { Initial investment } & \$ 150,000 & \$ 150,000 \
\text { Cash inflow Year 1 } & \$ 50,000 & \$ 40,000 \
\text { Cash inflow Year 2 } & \$ 50,000 & \$ 40,000 \
\text { Cash inflow Year 3 } & \$ 50,000 & \$ 40,000 \
\text { Cash inflow Year 4 } & \$ 50,000 & \$ 60,000 \
\text { Cash inflow Year 5 } & \$ 50,000 & \$ 80,000
\end{array}$$
-Refer to the Figure.What is the payback period for Project A?

Quizplus · Accepted Answer

The payback period for Project A is calculated by adding the cash inflows each year until the initial investment of $150,000 is recovered. With annual cash inflows of $50,000, it takes 3 years ($50,000 x 3 = $150,000) to recover the initial investment.

A Company Is Considering Two Projects -Refer to the Figure