Payback Period. Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the timeline below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4- year lives, and they have risk characteristics similar to the firm's average project. |0 2 3 4 Project A-1,050 600 370 290 340 Project B -1,050 200 305 440 790 By applying the payback period as a tool in Management Decision Making, determine which project will be most likely to be adopted by the Engineering Manager. a) Project B will be most likely to be favorable since it has a shorter Payback period of 2.36 years than that of Project A which is 3.13 years b) Project A will be most likely to be favorable since it has a shorter Payback period of 2.36 years than that of Project B which is 3.13 years c) Project B will be most likely to be favorable since it has a shorter Payback period of 2.28 years than that of Project A which is 3.13 years d) Project A will be most likely to be favorable since it has a shorter Payback period of 2.28 years than that of Project B which is 3.13 years
Payback Period. Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the timeline below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4- year lives, and they have risk characteristics similar to the firm's average project. |0 2 3 4 Project A-1,050 600 370 290 340 Project B -1,050 200 305 440 790 By applying the payback period as a tool in Management Decision Making, determine which project will be most likely to be adopted by the Engineering Manager. a) Project B will be most likely to be favorable since it has a shorter Payback period of 2.36 years than that of Project A which is 3.13 years b) Project A will be most likely to be favorable since it has a shorter Payback period of 2.36 years than that of Project B which is 3.13 years c) Project B will be most likely to be favorable since it has a shorter Payback period of 2.28 years than that of Project A which is 3.13 years d) Project A will be most likely to be favorable since it has a shorter Payback period of 2.28 years than that of Project B which is 3.13 years
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:Payback Period. Bellinger Industries is considering two projects for inclusion in its capital
budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are
shown on the timeline below. Depreciation, salvage values, net operating working capital
requirements, and tax effects are all included in these cash flows. Both projects have 4-
year lives, and they have risk characteristics similar to the firm's average project.
12 3 4
Project A-1,050 600 370 290 340
Project B -1,050 200 305 440 790
By applying the payback period as a tool in Management Decision Making, determine
which project will be most likely to be adopted by the Engineering Manager.
a) Project B will be most likely to be favorable since it has a shorter Payback
period of 2.36 years than that of Project A which is 3.13 years
b) Project A will be most likely to be favorable since it has a shorter Payback period
of 2.36 years than that of Project B which is 3.13 years
) Project B will be most likely to be favorable since it has a shorter Payback
period of 2.28 years than that of Project A which is 3.13 years
d) Project A will be most likely to be favorable since it has a shorter Payback period
of 2.28 years than that of Project B which is 3.13 years
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