A company is considering two projects.
$\begin{array}{lrr}
& \text { Froject I } & \text { Froject II } \
\text { Initial investment } & \$ 60,000 & \$ 60,000 \
\text { Cash inflow Year 1 } & \$ 30,000 & \$ 15,000 \
\text { Cash inflow Year 2 } & \$ 30,000 & \$ 15,000 \
\text { Cash inflow Year 3 } & \$ 30,000 & \$ 30,000 \
\text { Cash inflow Year 4 } & \$ 30,000 & \$ 70,000 \
\text { Cash inflow Year 5 } & \$ 30,000 & \$ 70,000
\end{array}$
-Refer to the Figure.What is the payback period for Project II?

Question

A company is considering two projects.
 $\begin{array}{lrr} 
& \text { Froject I } & \text { Froject II } \
\text { Initial investment } & \$ 60,000 & \$ 60,000 \
\text { Cash inflow Year 1 } & \$ 30,000 & \$ 15,000 \
\text { Cash inflow Year 2 } & \$ 30,000 & \$ 15,000 \
\text { Cash inflow Year 3 } & \$ 30,000 & \$ 30,000 \
\text { Cash inflow Year 4 } & \$ 30,000 & \$ 70,000 \
\text { Cash inflow Year 5 } & \$ 30,000 & \$ 70,000
\end{array}$
-Refer to the Figure.What is the payback period for Project II?

Quizplus · Accepted Answer

The payback period for Project II is calculated by adding the cash inflows each year until the initial investment is recovered. For Project II, the cumulative cash inflow reaches $60,000 at the end of Year 3 ($15,000 in Year 1, $15,000 in Year 2, and $30,000 in Year 3).

A Company Is Considering Two Projects -Refer to the Figure