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    Payback method

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    Assume a $40,000 investment and the following cash flows for two alternatives.

    Year Investment X Investment Y
    1 $6,000 $15,000
    2 $8,000 $20,000
    3 $9,000 $10,000
    4 $17,000 -
    5 $20,000 -

    Which of the alternatives would you select under the payback method?

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    Solution Preview

    Under the payback method we select all alternatives which have a payback period less than the cut off payback period. In case the cut off period is now known, we ...

    Solution Summary

    The solution explains the acceptance/rejection decision using payback method