A company is considering two capital investments. Each requires an initial investment of $15,000 and has a 4 year useful life. Investment A has expected cash inflows of $5,000 each year for the 4 years for total cash inflows of $20,000. Investment B has the following expected cash flows: Year 1: $8,000; Year 2: $6,000; Year 3: $4,000; Year 4: $2,000; Total cash flows: $20,000. Calculate the payback period for Investment A.
Added by Carolyn F.
Step 1
Step 1: Calculate the cumulative cash flows for Investment A for each year: Year 1: $5,000 Year 2: $5,000 + $5,000 = $10,000 Year 3: $10,000 + $5,000 = $15,000 Year 4: $15,000 + $5,000 = $20,000 Show more…
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