The Bar-None Manufacturing Company manufactures fence panels used in cattle feedlots throughout the Midwest. Bar-None’s management is considering three investment projects for next year but doesn’t want to make any investment that requires more than three years to recover the firm’s initial investment. The cash flows for the three projects (A, B, and C) are as follows: Year Project A Project B Project C $ $ $ 0 (1000) (10,000) (5,000) 1 600 5000 1000 2 300 3000 1000 3 200 3000 2000 4 100 3000 2000 5 500 3000 2000 a. Given Bara. Given Bar None’s three-year payback period, which of the projects should be accepted? b.Rank the three projects using their payback periods. Which project looks the best using this criterion? Do you agree with this ranking? Why or why not? c. If Bar-None uses a 10 percent discount rate to analyse projects, what is the discounted payback period for each of the three projects? If the firm still maintains its three-year payback policy for the discounted payback, which projects should the firm undertake?
The Bar-None Manufacturing Company manufactures fence panels used in cattle feedlots throughout the Midwest. Bar-None’s management is considering three investment projects for next year but doesn’t want to make any investment that requires more than three years to recover the firm’s initial investment. The cash flows for the three projects (A, B, and C) are as follows:
Year Project A Project B Project C
$ $ $
0 (1000) (10,000) (5,000)
1 600 5000 1000
2 300 3000 1000
3 200 3000 2000
4 100 3000 2000
5 500 3000 2000
a. Given Bara. Given Bar None’s three-year payback period, which of the projects should be accepted?
b.Rank the three projects using their payback periods. Which project looks the best
using this criterion? Do you agree with this ranking? Why or why not?
c. If Bar-None uses a 10 percent discount rate to analyse projects, what is the discounted payback period for each of the three projects? If the firm still maintains
its three-year payback policy for the discounted payback, which projects should the firm undertake?
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