If project A generates $10 million of free cash flow over its five year useful life and project B generates $8 million of free cash flow over its five year useful life,then Project A will have a shorter payback period than Project B,assuming both projects require the same initial investment.

Question

Quizplus · Accepted Answer

The payback period depends on the timing of cash flows, not just the total amount. Without knowing the distribution of cash flows over the five years, we cannot determine which project has a shorter payback period.

If Project a Generates $10 Million of Free Cash Flow