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Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 –$218,917 –$16,419 1 25,700 5,985 2 53,000 8,370 3 58,000 13,931 4 420,000 8,655 Whichever project you choose, if any, you require a 6 percent return on your investment. What is the payback period for Project A?

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hyderali230

Answer:

I will choose Project B

Payback period of Project A is 4.2 years

Explanation:

IRR shows the percentage rate at which the net present value of the cash flows are zero. The more IRR rate of the project the more beneficial it is.

IRR

Project A = 31%

Project B = 38%

In this Question the IRR of Project B is higher so, it will be more beneficial and I will select it based on IRR ignoring all other factors.

Payback period of Project A is 4.2 years means 4 years, 2 months and 12 days.

The payback period for Project A given the cash flows and the amount invested is 3.20 years.

What is the payback period?

Payback is a capital budgeting method used to determine the amount of time it takes to recover the amount invested in a project from it cumulative cash flows

  • Amount invested =  –$218,917
  • Amount recovered in year 1 =  –$218,917 + $25700 = -193,217
  • Amount recovered in year 2 = -193,217 + 53000 = -140,217
  • Amount recovered in year 3 = -140,217 + 58,000 = -82,217
  • Amount recovered in year 4 =  -82,217 / 420,000 = 0.20
  • Payback period = 3.20 years

To learn more about the payback period, please check: https://brainly.com/question/25716359

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