Choosing between two projects with acceptable payback periods Shell Camping Gear, Ic., is considering two mutually exclusive projects. Each requires an initial investment of $100,000. John Shell, 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: a. Determine the payback period of each project. b. Because they are mutually exclusive, Shell must choose one. Which should the company invest in? 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. Because they are mutually exclusive, Shell must choose one. Using the payback period, which project should the company invest in? (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 Data Table O Project A would be preferred over project B because the larger cash flows are in the later years of the project. (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Cash inflows (CF) Project A $10,000 $20,000 Project B $40,000 Year 1 $30,000 $20,000 $10,000 $20,000 2 $30,000 $40,000 $20,000 3. Click to select your answer(s).
Choosing between two projects with acceptable payback periods Shell Camping Gear, Ic., is considering two mutually exclusive projects. Each requires an initial investment of $100,000. John Shell, 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: a. Determine the payback period of each project. b. Because they are mutually exclusive, Shell must choose one. Which should the company invest in? 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. Because they are mutually exclusive, Shell must choose one. Using the payback period, which project should the company invest in? (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 Data Table O Project A would be preferred over project B because the larger cash flows are in the later years of the project. (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Cash inflows (CF) Project A $10,000 $20,000 Project B $40,000 Year 1 $30,000 $20,000 $10,000 $20,000 2 $30,000 $40,000 $20,000 3. Click to select your answer(s).
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, Ic., is considering two mutually exclusive projects. Each requires an initial investment of $100,000. John ShellI, 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: E.
a. Determine the payback period of each project.
b. Because they are mutually exclusive, Shell must choose one. Which should the company invest in?
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. Because they are mutually exclusive, Shell must choose one. Using the payback period, which project should the company invest in? (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.
Data Table
O Project A would be preferred over project B because the larger cash flows are in the later years of the project.
(Click on the icon located on the top-right corner of the data table below in order to
copy its contents into a spreadsheet.)
Cash inflows (CF;)
Project A
$10,000
Year
Project B
$40,000
$20,000
$30,000
$30,000
$20,000
$10,000
$20,000
3
4
$40,000
$20,000
Click to select your answer(s).
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