Assume a $80,000 investment and the following cash flows for two alternatives. Year Investment X Investment Y 1 $20,000 $40,000 2 25,000 30,000 3 20,000 15,000 4 25,000 — 5 20,000 — a. Calculate the payback for investment X and Y.

Instructions are below.

Explanation:

Giving the following information:

Io= -$80,000

Investment X:

Year 1= $20,000

Year 2= $25,000

Year 3= $20,000

Year 4= $25,000

Year 5= $20,000

Investment Y:

1= $40,000

2= $30,000

3= $15,000

The payback period is the number of years and days that takes to recover the initial investment.

Payback period Investment X:

Year 1= 20,000 - 80,000= -60,000

Year 2= 25,000 - 60,000= -35,000

Year 3= 20,000 - 35,000= -15,000

Year 4= 25,000 - 15,000= 10,000

To calculate the days:

15,000/25,000= 0.6*365= 219 days

It will take 3 years and 219 days to recover the initial investment.

Payback period Investment Y:

Year 1= 40,000 - 80,000= -40,000

Year 2= 30,000 - 40,000= -10,000

Year 3= 15,000 - 10,000= 5,000

To calculate the days:

10,000/15,000= 0.67*365= 245 days

It will take 2 years and 245 days.

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