Explain the exact payback period

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Project "Orbit" has the following cashflows for the next 5 years. Additionally, project Orbit requires $30,000 working capital (WC) for the initial investment year. However, due to various unforeseen circumstances, management believes that only 80% of the WC will be recovered in year 4. The similar projects have a cut off line of 3.5 years. 

Year

Net cash flow

 

0

(200,000)

 

1

50,000

 

2

65,000

 

3

85,000

 

4

5

75,000

30,000

 

 

50,000

Scrap value in year 5

While considering the working capital, the exact payback period is either (3.3, 3, 3.5, 3.625, 3.25, 3.55) years and orbit should either (accept or reject) the project.

Without considering the working capital, the exact payback period is either (3.3 3 3.5 3.625 3.25 3.55) years and orbit should either (accept or reject) the project. 

Reference no: EM133205237

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