Question
1) Defco Constructions is offered two contracts on the same day for building a new retirement village and a new library complex respectively. The contracts
1) Defco Constructions is offered two contracts on the same day for building a new retirement village and a new library complex respectively. The contracts promise total profits of $11 million and $14 million, extending over four years and five years, respectively. Each will require investment of $8 million. On the basis of ARR, which contract is more profitable?
2) Defco Constructions (in exercise 1) recovers its project investment by straight-line methods so that the $10 million is recovered by the end of each project. Assuming profits are also booked in a straight-line fashion, what is the PP for each contract?
I have already answered exercise 1, i just need assistance with exercise 2 and how to calculate the Payback period for that exercise!
Thank you :)
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