Investment A: Investment B:
Investment C:
The cash flows for three projects are shown above. The cost of capital is 9.5%. If an investor decided to take projects with a payback period two years or less, which of these projects would he take?

Question

Investment A:  Investment B:
 Investment C:
 The cash flows for three projects are shown above. The cost of capital is 9.5%. If an investor decided to take projects with a payback period two years or less, which of these projects would he take?

Quizplus · Accepted Answer

A) Payback period is (2 + $2000 / $6000) years = 2.33 years. As it is more than 2 years, so not acceptable
B) Payback period is (2 + $1000/ $7000) years = 2.14 years. As it is more than 2 years, so not acceptable
C) Payback period is 4 years ($12,000 + $2000 + $2000 + $2000 = $18,000). As it is more than 2 years, so not acceptable.
D) A) Payback period is (2 + $2000 / $6000) years = 2.33 years. As it is more than 2 years, so not acceptable
B) Payback period is (2 + $1000/ $7000) years = 2.14 years. As it is more than 2 years, so not acceptable
C) Payback period is 4 years ($12,000 + $2000 + $2000 + $2000 = $18,000). As it is more than 2 years, so not acceptable.