A company is evaluating 3 possible investments. Each uses straight-line depreciation. See data below:
$\begin{array}{|c|c|c|c|}
\hline & \text { Project A } & \text { Project B } & \text { Project C } \
\hline \text { Investment } & \$ 400,000 & \$ 20,000 & \$ 100,000 \
\hline \text { Salvage value } & \$ 0 & \$ 2,000 & \$ 5,000 \
\hline\
\hline \text { Net cash flows: } & & & \
\hline \text { Year 1 } & \$ 100,000 & \$ 10,000 & \$ 40,000 \
\hline \text { Year 2 } & \$ 100,000 & \$ 8,000 & \$ 25,000 \
\hline \text { Year 3 } & \$ 100,000 & \$ 5,000 & \$ 30,000 \
\hline \text { Year 4 } & \$ 100,000 & \$ 3,000 & \$ 10,000 \
\hline \text { Year 5 } & \$ 100,00 & \$ 0 & \$ 0 \
\hline
\end{array}$
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What is the payback period for Project A?

Question

Quizplus · Accepted Answer

The payback period is the time it takes for the investment to be recovered from the net cash flows. For Project A, the cumulative cash flows are: Year 1: $100,000, Year 2: $200,000, Year 3: $300,000, Year 4: $400,000. The investment of $400,000 is fully recovered by the end of Year 4, so the payback period is 4.0 years.

A Company Is Evaluating 3 Possible Investments - What Is the Payback Period for Project A? A)

A Company Is Evaluating 3 Possible Investments -
What Is the Payback Period for Project A?
A)