Long-term investment decision, payback method Personal Finance Problem Bill Williams has the opportunity to invest in project A that costs $9,600 today and promises to pay $2,200, $2,400, $2,400, $2,000 and $1,900 over the next 5 years. Or, Bill can invest $9,600 in project B that promises to pay $1,500, $1,500, $1,500, $3,500 and $4,000 over the next 5 years. (Hint: For mixed stream cash inflows, calculate cumulative cash inflows on a year-to-year basis until the initial investment is recovered.) a. How long will it take for Bill to recoup his initial investment in project A? b. How long will it take for Bill to recoup his initial investment in project B? c. Using the payback period, which project should Bill choose? d. Do you see any problems with his choice?
Long-term investment decision, payback method Personal Finance Problem Bill Williams has the opportunity to invest in project A that costs $9,600 today and promises to pay $2,200, $2,400, $2,400, $2,000 and $1,900 over the next 5 years. Or, Bill can invest $9,600 in project B that promises to pay $1,500, $1,500, $1,500, $3,500 and $4,000 over the next 5 years. (Hint: For mixed stream cash inflows, calculate cumulative cash inflows on a year-to-year basis until the initial investment is recovered.) a. How long will it take for Bill to recoup his initial investment in project A? b. How long will it take for Bill to recoup his initial investment in project B? c. Using the payback period, which project should Bill choose? d. Do you see any problems with his choice?
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:Long-term investment decision, payback method Personal Finance Problem Bill Williams has the opportunity to invest in project A that costs $9,600 today and promises to pay $2,200, $2,400, $2,400, $2,000 and
$1,900 over the next 5 years. Or, Bill can invest $9,600 in project B that promises to pay $1,500, $1,500, $1,500, $3,500 and $4,000 over the next 5 years. (Hint: For mixed stream cash inflows, calculate cumulative
cash inflows on a year-to-year basis until the initial investment is recovered.)
a. How long will it take for Bill to recoup his initial investment in project A?
b. How long will it take for Bill to recoup his initial investment in project B?
c. Using the payback period, which project should Bill choose?
d. Do you see any problems with his choice?
a. For Bill to recoup his initial investment in project A, it
take
years. (Round to two decimal places.)
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