abc Inc., is considering two projects. Each requires an initial investment of $100,000. John Proton, president of the company, has set a maximum payback period of 4 years. The after-tax cash inflows associated with each project are shown in the following table. Cash inflows (CF,) Year Project A Project B $10,000 $40,000 20,000 30,000 3. 30,000 20,000 40,000 10,000 20,000 20,000 Compute the payback period of each project. Which should the company invest in, firstly, what if the projects are independent? Secondly, what if the projects are mutually exclusive? Please support your recommendations of project investment with own interpretations.
abc Inc., is considering two projects. Each requires an initial investment of $100,000. John Proton, president of the company, has set a maximum payback period of 4 years. The after-tax cash inflows associated with each project are shown in the following table. Cash inflows (CF,) Year Project A Project B $10,000 $40,000 20,000 30,000 3. 30,000 20,000 40,000 10,000 20,000 20,000 Compute the payback period of each project. Which should the company invest in, firstly, what if the projects are independent? Secondly, what if the projects are mutually exclusive? Please support your recommendations of project investment with own interpretations.
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter26: Capital Investment Analysis
Section: Chapter Questions
Problem 3CMA
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![abc Inc., is considering two projects. Each requires an initial investment of
$100,000. John Proton, president of the company, has set a maximum payback period
of 4 years. The after-tax cash inflows associated with each project are shown in the
following table.
Cash inflows (CF,)
Year
Project A
Project B
$10,000
$40,000
2.
20,000
30,000
3
30,000
20,000
4
40,000
10,000
5
20,000
20,000
Compute the payback period of each project. Which should the company invest in,
firstly, what if the projects are independent? Secondly, what if the projects are mutually
exclusive? Please support your recommendations of project investment with own
interpretations.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F58c98c03-a205-4442-851c-5d58ade93297%2F598fcf2b-99da-47bd-b825-99e1344a57f9%2Fsu8hw4o_processed.jpeg&w=3840&q=75)
Transcribed Image Text:abc Inc., is considering two projects. Each requires an initial investment of
$100,000. John Proton, president of the company, has set a maximum payback period
of 4 years. The after-tax cash inflows associated with each project are shown in the
following table.
Cash inflows (CF,)
Year
Project A
Project B
$10,000
$40,000
2.
20,000
30,000
3
30,000
20,000
4
40,000
10,000
5
20,000
20,000
Compute the payback period of each project. Which should the company invest in,
firstly, what if the projects are independent? Secondly, what if the projects are mutually
exclusive? Please support your recommendations of project investment with own
interpretations.
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