Long-term investment decision, payback method Personal Finance Problem Bill Williams has the opportunity to invest in project A that costs $5,100 today and promises to pay $2,100, $2,500, $2,500, $2,000 $1,900 over the next 5 years. Or, Bill can invest $5,100 in project B that promises to pay $1,300, $1,300, $1,300, $3,400 $3,900 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 $5,100 today and promises to pay $2,100, $2,500, $2,500, $2,000 $1,900 over the next 5 years. Or, Bill can invest $5,100 in project B that promises to pay $1,300, $1,300, $1,300, $3,400 $3,900 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?
Chapter16: Real Estate And High-risk Investments
Section: Chapter Questions
Problem 1FPC
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Long-term investment decision, payback method Personal Finance Problem Bill Williams has the opportunity to invest in project A that costs
$5,100
today and promises to pay
$2,100,
$2,500,
$2,500,
$2,000
$1,900
over the next 5 years. Or, Bill can invest
$5,100
in project B that promises to pay$1,300,
$1,300,
$1,300,
$3,400
$3,900 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?
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