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You "recovered" $842 of the investment through year 1-2-3 discounted payback benefits, now you are looking for the last $158, in order to get to $1000 in total. Year 4 is expected to generate $193 in discounted payback benefits, so you only need $158 divided by $193 = 0.8 years from year 4 to get there. 3 + 0.8 = 3.8.
if both projects have exactly the same payback period and the question mentions that without considering the time value of money we have to select one project, how do we proceed?
Mexico corporations India Ltd is considering 2 proposals of capital budgeting are mutually exclusive. The comparative figures of the same are listed below. For Project X the initial investment is Rs. 7,25,35,680, and the expected annual cash inflows are Rs. 38,50,560, Rs. 60,50,600, Rs. 85,25,000, Rs. 98,48,500, Rs. 110,52,650, Rs. 145,80,900, Rs. 186,27,470, Rs. 90,50,600, Rs. 85,80,600, Rs. 67,75,500. For Project Y the initial investment is Rs. 6,15,23,960, and the expected annual cash inflows are Rs. 26,50,980, Rs. 38,15,650, Rs. 72,50,500, Rs. 95,50,400, Rs. 110,42,800, Rs. 120,80,600, Rs. 151,33,030, Rs. 95,70,800,Rs. 70,68,600, and Rs. 40,42,500. Using Pay-back period method, without giving any consideration for time value money, you are requested to help out Mexico corporations India Ltd to selec project.
Take a look for how money periods the benefits are occurring in both cases. If project A has an investment of $1000 and 4 years of $400 benefits per year, and project D has an investment of $1000 with 5 years of $400 benefits per year, the payback method tells you that both projects are equally attractive at a payback period of 2.5 years. Any entrepreneur with skin in the game would intuitively and correctly choose project D over project A, without having heard of any of the more fancy terms. See also: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-FJjGi7gsK3A.html
