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Capital Budgeting : Cash Flow and Payback

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Tapley Dental Associates is considering a project that has the following cash flow data. What is the project's payback?

Year: 0 1 2 3 4 5
Cash flows: -$1,000 $300 $310 $320 $330 $340

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PAYBACK = point in time where the inital investment is completely recovered:

Recovery ...

Solution Summary

In a brief, concise response, this solution calculates the project's payback using step by step calculation.

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Net Present Value, Internal Rate of Return, Profitability Index, Payback Period, Discount Payback Period, and Modified Internal Rate of Return

Evaluate the following 3 projects with all of the 6 capital budgeting tools (Net Present Value, Internal rate of Return, Profitability Index, Payback Period, Discount Payback Period, Modified Internal rate of Return). Which projects would you approve? If you could do only one (assume the most you have to invest is $500), which one would you choose and why? in other words, which project would you pick as the best:

Cash Flow Years 0 1 2 3 4 5

Project A (500) 45 55 65 175 185

Project B (250) 85 65 55 45 100

Project C (400) 175 75 75 175 25

Use 10% as the discount rate and WACC (and the IRR/MIRR hurdle rate)

*Year 0 is your initial cost outlay -- the cost of the project.

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