Calculation of payback period of the project and comment on its liquidity
Payback
Three separate projects each have an initial cash outlay of $10,000. The cash flow for Peters Project is $4000.00 per year for three years. The cash flow for Paul's Project is $2000.00 in years I and 3, and $8000.00 in year 2. Mary's Project has a cash flow of $10,000.00 in year 1, followed by $1000.00 each year for years 2 and 3.
a. Use the payback method to calculate how many years it will take for each project to recoup the initial investment.
b. Which project would you consider most liquid?