the payback period
The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions.
Consider the case of Green Caterpillar Garden Supplies Inc.:
Green Caterpillar Garden Supplies Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Alphaâ€
s expected future cash flows. To answer this question, Green Caterpillarâ€s CFO has asked that you compute the projectâ€s payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year.
Complete the following table and compute the projectâ€s conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer.)
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