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Social ScienceCompute the payback statistic for Project A if the appropriate cost of capital is 7 percent and the maximum allowable payback period is four years. (Round your answer to 2 decimal places.) Project A Time:012345Cash flow:−$1,400$510$600$600$380$180Payback years: _______.__
Compute the payback statistic for Project A if the appropriate cost of capital is 7 percent and the maximum allowable payback period is four years. (Round your answer to 2 decimal places.)
| Project A | ||||||
| Time: | 0 | 1 | 2 | 3 | 4 | 5 |
| Cash flow: | −$1,400 | $510 | $600 | $600 | $380 | $180 |
Payback years: _______.__
Expert Answer
Calculation of Payback Period:
The payback period is 2.48 years.
The project should be Accepted since the payback of 2.48 years is less than the average payback of the company of 4 years.
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A C Year Cash Flow Discounted Cash Flows 1 ($1,400) $510 2 0 ($1,400) (S890) ($290) $310 3 1 4 2 $600 $600 5 3 $380 $690 6 4 $870 7 5 $180 Payback Period 2.48
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