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Sagot :
Answer:
3.6 years
3.88 years
Option A would be chosen because it has a lower payback period than option B
Explanation:
Payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative cash flows
Payback period for option A, Product A
Amount invested = $-465,000
Amount recovered in year 1 = $-465,000 + $190,000 = $-275,000
Amount recovered in year 2 = $-275,000 + $195,000 = $-80,000
Amount recovered in year 3 = $-80,000 + $65,000 = $-15,000
Amount recovered in year 1 = $-15,000 + $25,000 = $10,000
Payback period = 3 years + (15,000) / (25,000) = 3.6 years
Payback period for option b, Product b
Amount invested = $-465,000
Amount recovered in year 1 = $-465,000 + $150,000 = $-315,000
Amount recovered in year 1 = $-315,000 + 175,000 = $-140,000
Amount recovered in year 1 = $-140,000 + 65,000 = $-75,000
Amount recovered in year 1 = $-75,000 + $85,000 = $10,000
Payback period = 3 years + (75,000 / 85,000) = 3.88 years
Option A would be chosen because it has a lower payback period than option B
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