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What are the payback periods for both projects


Question: The cash flows from two capital expenditure projects are shown below. The discount rate is 10%.

                    Project A     Project B
Initial cost    $(10,000)    $(10,000)
Year 1              6,000          2,000
Year 2              5,000          4,000
Year 3              1,000          8,000
Year 4                  0           16,000

Q1. What are the payback periods for both projects?

Q2. What is the NPV for both projects?

Q3. What are the drawbacks from using payback as a method for selecting projects?

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Finance Basics: What are the payback periods for both projects
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