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28 December, 03:42

A company is considering two projects. Project A Project B Initial investment $300,000 $300,000 Cash inflow Year 1 $60,000 $90,000 Cash inflow Year 2 $60,000 $80,000 Cash inflow Year 3 $60,000 $80,000 Cash inflow Year 4 $60,000 $50,000 Cash inflow Year 5 $60,000 $70,000 What is the payback period for Project B

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  1. 28 December, 04:33
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    Payback Period = 3 years

    Explanation:

    Years Cash flow (Out flow) Net cash flow Cumulative cash flow

    0 - 300,000 - - 300,000

    1 90,000 90,000 - 210,000

    2 80,000 80,000 - 130,000

    3 80,000 80,000 - 50,000

    4 50,000 50,000 0

    5 70,000 70,000 70,000

    Payback Period = 3 years

    It means it will take 3 years of period to payback the project B Initial investment of $300,000
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