GRADED Activity #8 (10 pts)

Solve the following problem applying the method used in the video uploaded in your powerpoint
presentation. You may check: Lesson 04 Video 01 Payback period

Problem. Assume the following cash flow for 2 projects.Assuming that the cash flows are occurring at the
end of the year. Find the payback period for both these projects.

Year Project 1 Project 2

0 -1000 -1000
1 500 100
2 400 300
3 200 500
4 100 600
5 100 700

Project 1

Payback = year before recovery + unrecovered amount at the start of the period
cash flow during the period
Payback = 2 + 100 = 2.5 years
200

Project 2

Payback = year before recovery + unrecovered amount at the start of the period
cash flow during the period
Payback = 3 + 100 = 3.16 years
600