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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 Summary

The solution explains the acceptance/rejection decision using payback method

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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 ...

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