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23 December, 16:05

Assume a $80,000 investment and the following cash flows for two alternatives. Year Investment X Investment Y 1 $20,000 $40,000 2 25,000 30,000 3 20,000 15,000 4 25,000 - 5 20,000 - a. Calculate the payback for investment X and Y.

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  1. 23 December, 16:43
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    Instructions are below.

    Explanation:

    Giving the following information:

    Io = - $80,000

    Investment X:

    Year 1 = $20,000

    Year 2 = $25,000

    Year 3 = $20,000

    Year 4 = $25,000

    Year 5 = $20,000

    Investment Y:

    1 = $40,000

    2 = $30,000

    3 = $15,000

    The payback period is the number of years and days that takes to recover the initial investment.

    Payback period Investment X:

    Year 1 = 20,000 - 80,000 = - 60,000

    Year 2 = 25,000 - 60,000 = - 35,000

    Year 3 = 20,000 - 35,000 = - 15,000

    Year 4 = 25,000 - 15,000 = 10,000

    To calculate the days:

    15,000/25,000 = 0.6*365 = 219 days

    It will take 3 years and 219 days to recover the initial investment.

    Payback period Investment Y:

    Year 1 = 40,000 - 80,000 = - 40,000

    Year 2 = 30,000 - 40,000 = - 10,000

    Year 3 = 15,000 - 10,000 = 5,000

    To calculate the days:

    10,000/15,000 = 0.67*365 = 245 days

    It will take 2 years and 245 days.
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