Page 363 - F2 - MA Integrated Workbook STUDENT 2018-19

Capital budgeting

Test your understanding 5

Year Profit Cash flow (adjusted Cumulative cash
for depreciation) flow

$ $ $

0 (500,000)

1 90,000 105,000 (395,000)

2 120,000 135,000 (260,000)

3 150,000 165,000 (95,000)

4 130,000 145,000 50,000

The payback period is 3 years and (95/145 × 12) 8 months

This project should be rejected as the payback is longer than the required
3 years.

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