Independentprojectsifthecashflowsof

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Unformatted text preview: we should include the part that occurs because of the project What is the difference between independent What is the difference between independent and mutually exclusive projects? Independent projects – if the cash flows of one are unaffected by the acceptance of the other. Mutually exclusive projects – if the cash flows of one can be adversely impacted by the acceptance of the other. What is the payback period? What is the payback period? The number of years required to recover a project’s initial cost back, or “How long does it take to get our money back?” Calculated by adding project’s cash inflows to its cost until the cumulative cash flow for the project turns positive. Decision Rule – Accept if the payback period is less than some preset limit Calculating payback period Calculating payback period Project L CFt Cumulative PaybackL Project S CFt Cumulative PaybackS 1 -100 -100 =2 = 2.4 3 60 -30 100 0 80 30 / 80 + 0 1.6 1 -100 -100 =1 = 2 10 -90 0 70 -30 + = 2.375 years 2 100 50 0 20 30 / 50 50 3 20 40 = 1.6 years Computing Payback Fo...
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This document was uploaded on 01/14/2014.

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