if you could show work please Choosing between two projects with acceptable payb

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if you could show work please

Choosing between two projects with acceptable payback periods Shell Camping Gear, Inc. , is considering two mutually exclusive projects. Each requires an initial investment of $100, 000. John Shell, president of the company, has set a maximum payback period of 4 years. The after-tax cash inflows associated with cash project arc shown in the following table: ). Determine the payback period of cash project. Because they are mutually exclusive, Shell must choose one. Which should the company invest in?

Explanation / Answer

Hi, If you like my answer rate me lifesaver first...that way only I can earn points. Thanks Initial Investment = $100000 Year Project A Project B Year 1 10000 40000 Year 2 20000 30000 Year 3 30000 20000 Year 4 40000 10000 Year 5 20000 20000 for project A sum of cashflows of year 1 to 4 = $100000. So payback period = 4 years for project B sum of cashflows of year 1 to 4 = $100000. So payback period = 4 years Shell can choose either, based on payback period. But it can use NPV or IRR to choose between the projects. Payback cannot help in this case.

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