## Answers

rate positively ..

Cash flow | Cumulative cash flow | |||||||||

Year | Project A | Project B | Project A | Project B | ||||||

0 | -9900 | -9900 | -9900 | -9900 | ||||||

1 | 2300 | 1600 | -7600 | -8300 | ||||||

2 | 2600 | 1600 | -5000 | -6700 | ||||||

3 | 2600 | 1600 | -2400 | -5100 | ||||||

4 | 2100 | 3700 | -300 | -1400 | ||||||

5 | 1800 | 4100 | 1500 | 2700 | ||||||

Ans a) | Payback periof of A= | 4+300/1800 | ||||||||

4.17 | Year | |||||||||

Ans b) | Payback periof of B= | 4+1400/4100 | ||||||||

4.34 | Year | |||||||||

Ans c) | Based on payback project A will be selected. | |||||||||

Ans d) | Payback period does not take into account the time value of money. Therefore its not best method. | |||||||||

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