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Table 17-A-1 Payback Method Input Year Cash Flow 0 (70,000) Balance (70,000)

Table 17-A-1 Payback Method Input Year Cash Flow 0 (70,000) Balance (70,000)

Fundamentals of Financial Management (MindTap Course List)
Fundamentals of Financial Management (MindTap Course List)
15th Edition
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter12: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 17P: EQUIVALENT ANNUAL ANNUITY A firm has two mutually exclusive investment projects to evaluate. The...
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capital expenditure budgets concepts. One of the methods used is the payback period method.

what it means to have a project with a 3.5 years as payback period? Explain. If nvesting in this project, would you prefer a lower payback period (let's say 2.5 years for example) or a higher payback period (let's say 4.5 years for example)? and why? 

 

Table 17-A-1 Payback Method Input Year 0 1 2 3 4 5 Cash Flow (70,000) 20,000 20,000 20,000 20,000 20,000 Balance (70,000) (50,000) (30,000) (10,000) 10,000 30,000 The investment of $70,000 is recovered halfway between year 3 and year 4, when the remaining balance to be recovered equals zero.
Transcribed Image Text:Table 17-A-1 Payback Method Input Year 0 1 2 3 4 5 Cash Flow (70,000) 20,000 20,000 20,000 20,000 20,000 Balance (70,000) (50,000) (30,000) (10,000) 10,000 30,000 The investment of $70,000 is recovered halfway between year 3 and year 4, when the remaining balance to be recovered equals zero.
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