Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Choosing between two projects with acceptable payback periods Shell Camping Gear, Inc., is considering two mutually exclusive projects. Each requires an initial investment of $180,000. John Shell, president of the
company, has set a maximum payback period of 4 years.
The cash inflows associated with each project are shown in the following table:
a. Determine the payback period of each project.
b. Which project is acceptable based on payback period?
C
a. The payback period of project A is
years. (Round to two decimal places.)
The payback period of project B is
years. (Round to two decimal places.)
b. Which project is acceptable based on payback period? (Select the best answer below.)
O Project B would be preferred over project A because the larger cash flows are in the early years of the project.
O Project A would be preferred over project B because the larger cash flows are in the later years of the project.
Transcribed Image Text:T
d
56
15756SIA
Data table
(Click on the icon here in order to copy the contents of the data table below
into a spreadsheet.)
Cash inflows (CF)
Year
1
2
3
4
5
Print
Project A
$30.000
$40,000
$50,000
$60.000
$40,000
Project B
$60.000
$50,000
$40.000
$30,000
$40.000
Done
I
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