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Detailed Explanation to Payback period

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Caledonia is considering two additional mutually exclusive projects. The cash flows associated with these projects are as follows:
YEAR PROJECT A PROJECT B
0 -$100,000 -$100,000
1 32,000 0
2 32,000 0
3 32,000 0
4 32,000 0
5 32,000 $200,000
The required rate of return on these projects is 11 percent.
1. What is each project's payback period?

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Solution Summary

This solution explains how to calculate the payback period for the projects.

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Payback period is the time taken to recover the initial investment
Project A has an initial investment of 100,000. It earns 32,000 each year. Time taken to ...

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