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:012345Cash flow:−$1,400$510$600$600$380$180Payback years: _______.__

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Asked Nov 20, 2019
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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: _______.__

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Step 1

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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