Each of these investment opportunities need initial investment of $1000. What is
ID: 2715497 • Letter: E
Question
Each of these investment opportunities need initial investment of $1000. What is the payback period for each of them? Which one do you prefer based on payback method?Each of these investment opportunities need initial investment of $1000. What is the payback period for each of them? Which one do you prefer based on payback method?
Cash flows:
Year
A
B
C
1
$200
$250
$400
2
250
250
350
3
300
250
200
4
350
250
150
5
400
250
100
Year
A
B
C
1
$200
$250
$400
2
250
250
350
3
300
250
200
4
350
250
150
5
400
250
100
Explanation / Answer
Investment A PBP Time Amount Cumulative - (1,000.00) (1,000.00) 1.00 200.00 (800.00) 2.00 250.00 (550.00) 3.00 300.00 (250.00) 4.00 350.00 100.00 5.00 400.00 500.00 PBP = 3 + 250/350 PBP = 3.71 Years Investment B PBP Time Amount Cumulative - (1,000.00) (1,000.00) 1.00 250.00 (750.00) 2.00 250.00 (500.00) 3.00 250.00 (250.00) 4.00 250.00 - 5.00 250.00 250.00 PBP = 4 Years Investment C PBP Time Amount Cumulative - (1,000.00) (1,000.00) 1.00 400.00 (600.00) 2.00 350.00 (250.00) 3.00 200.00 (50.00) 4.00 150.00 100.00 5.00 100.00 200.00 PBP = 3 + 50/150 PBP = 3.33 Years We will prefer Investment 3 as it has lowest PBP of 3.33 Years
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