CASTILLO, KRISSIA C.

[2307] SNS GIT

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. (10pts)
YEAR PROJECT 1 PROJECT 2

0 - P 1000.00 - P 1000.00

1 P 600.00 P 100.00

2 P 400.00 P 400.00

3 P 200.00 P 600.00

4 P 200.00 P 600.00

5 P 100.00 P 700.00

Solution:
0 1 2 3 4 5
PROJECT 1
-1000 600 400 200 200 100
1000 1200 1400 1500

Payback Period = years before full recovery + unrecovered amount at the start of period
cash flow during the period
Payback Period = 1 + 400
400
Payback Period = 2 years

Payback Period = years before full recovery + unrecovered amount at the start of period
cash flow during the period
Payback Period = 2 + 500
600
Payback Period = 2.83 years or 2 years and 10 months