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Unformatted text preview: 0.4 into year 3. Therefore, payback L = 2.4 years. Similarly, payback S = 1.6 years. j. 2. What is the rationale for the payback method? According to the payback criterion, which franchise or franchises should be accepted if the firm's maximum acceptable payback is 2 years, and if franchises L and S are independent? If they are mutually exclusive? Answer: Payback represents a type of "breakeven" analysis : the payback period tells us when the project will break even in a cash flow sense. With a required payback of 2 years, franchise S is acceptable, but franchise L is not. Whether the two projects are independent or mutually exclusive makes no difference in this case. Mini Case: 11 - 41...
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- Spring '08