Mendez Company is considering a capital project that costs $16,000.The project will deliver the following cash flows: $\begin{array}{|l|l|l|l|l|}
\hline \underline {\text { Year 1 }} & \underline {\text { Year 2 }} & \underline {\text { Year 3 }} & \underline {\text { Year 4 }} & \underline {\text { Year 5 }} \
\hline \$ 8,000 &\$ 6 ,000&\$ 5,000&\$ 6 ,000&\$5 ,000\
\hline
\end{array}$ Using the incremental approach,the payback period for the investment is:

Question

Mendez Company is considering a capital project that costs $16,000.The project will deliver the following cash flows: $\begin{array}{|l|l|l|l|l|}
\hline  \underline {\text { Year 1 }} & \underline {\text { Year 2 }} & \underline {\text { Year 3 }} & \underline {\text { Year 4 }} & \underline {\text { Year 5 }}  \
\hline  \$ 8,000 &\$ 6 ,000&\$  5,000&\$ 6 ,000&\$5  ,000\
\hline
\end{array}$ Using the incremental approach,the payback period for the investment is:

Quizplus · Accepted Answer

The cumulative cash flow becomes positive between Year 2 and Year 3. By the end of Year 2, $14,000 is recovered. The remaining $2,000 is recovered in 0.4 of Year 3 ($2,000/$5,000), making the payback period 2.4 years.

Mendez Company Is Considering a Capital Project That Costs $16,000