The Initial Outlay or Cost Is $1,500,000 for a Four-Year

question 45

Multiple Choice

The initial outlay or cost is $1,500,000 for a four-year project.The respective future cash inflows for years 1,2,3 and 4 are: $400,000,$500,000,$600,000 and $200,000.What is the payback period without discounting cash flows?

• A)About 2.50 years
• B)About 2.67 years
• C)About 3.00 years
• D)About 3.50 years

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Definitions:

Alternative Choices

Different options or courses of action that can be taken in a decision-making process.

Sunk Cost

A cost that has already been incurred and cannot be recovered, regardless of future events.

Differential Cost

The difference in cost between two alternative decisions or changes in the level of output or activity.

Total Cost Method

The total cost method is an accounting approach that sums all costs involved in producing or buying goods to determine their overall expense.