Assume a $4,000 investment and the following cash flows for two alternatives.
Year Investment X Investment Y
1 $1,000 $1,300
2 800 2,800
3 700 100
a. Under the payback method, which investment should be chosen?
b. Why do other methods allow for a better analysis?© BrainMass Inc. brainmass.com March 21, 2019, 9:26 pm ad1c9bdddf
Payback is the time taken to recover the initial investment. Under payback method we choose the investment with a shorter payback.
The initial investment is $4,000
Investment X - we ...
This solution shows the steps for determining which of the given investments should be chosen under the payback method.