Assume a $200,000 investment and the following cash flows for two alternative capital projects: Year Project A Project B 1 $60,000 $40,000 2 90,000 70,000 3 50,000 80,000 4 40,000 20,000 a. Calculate the payback period for each project b. Using the payback method, if the projects are mutually exclusive, which project would you select and why? c. If the year four cash flows were $100,000 for Project A and $500,000 for project b, would your decision change under the payback method? Why or why not?
Assume a $200,000 investment and the following cash flows for two alternative capital projects: Year Project A Project B 1 $60,000 $40,000 2 90,000 70,000 3 50,000 80,000 4 40,000 20,000 a. Calculate the payback period for each project b. Using the payback method, if the projects are mutually exclusive, which project would you select and why? c. If the year four cash flows were $100,000 for Project A and $500,000 for project b, would your decision change under the payback method? Why or why not?
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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Assume a $200,000 investment and the following cash flows for two alternative capital projects: Year Project A Project B 1 $60,000 $40,000 2 90,000 70,000 3 50,000 80,000 4 40,000 20,000
a. Calculate the payback period for each project
b. Using the payback method, if the projects are mutually exclusive, which project would you select and why?
c. If the year four cash flows were $100,000 for Project A and $500,000 for project b, would your decision change under the payback method? Why or why not?
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