Choosing between two projects wth accegatie payback periods h?CamOng Gear, ine.

Question

Choosing between two projects wth accegatie payback periods h?CamOng Gear, ine. is cons deng to mutaly ecul e pro acts Ea? requines an rnal meme t of Stooooo. Jan Ste" presort of he compan has set a ma num, payback peniod of 4 years. The after-ax cash infows associated with each project are shown in the following table a. Detarmine the payback penod of each project Data Table b. Because they are muualty exclusive, Shell must choose one Which should the company invest in? a The payback peniod of projet Asers Round to two decimal plece The payback perod of proect BDyears Rand to two dec mal p aces.) b. Because hey alily eclusive, Sell must choose one sing the paybaok peried, which project shoud the company nvest in O Proet B woud be prefeed over proet A because the arger cash ows are in the early years of the proect Cick on the licom located on the toe-right coner of the date table below in order to copy its contents into a spreadsheet Year TA $30,000 $40,000 $20.000 10.000 O Project A would be prefemed over project B because the larger cash Sous are in the ler years of the project

Explanation / Answer

3. Option a is correct. Project B should be preferred  beacuse higher cash flows are optioned from the beginning

Best of luck. God bless

Project A Year 0 1 2 3 4 5 Cash flow -100000 10,000 20,000 30000 40000 20000 Incremental Cash flow = Incremental Cash flow of previous year + Cash flow of following Year -100000 -90,000 -70,000 -40,000 0 20,000 Payback Back period is the period at which incremental acsh flows =0 Payback Period 4.00 Project B Year 0 1 2 3 4 5 Cash flow -100000 40,000 30,000 20,000 10,000 20000 Incremental Cash flow -100000 -60,000 -30,000 -10,000 0 20,000 Payback Back period is the period at which incremental cash flows =0 Payback Period 4.00

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