Question
2. Choosing between two projects with acceptable payback periodsShell Camping Gear, Inc., is considering two mutually exclusive projects. Each requires an initial investment of $100,000.
2. Choosing between two projects with acceptable payback periodsShell 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 cash inflows associated with each project are shown in the following table:
.
a.Determine the payback period of each project.
b.Which project is acceptable based on payback period?
| Cash inflows (CFt) | ||||
| Year | Project A | Project B | ||
| 1 | $10,000 | $40,000 | ||
| 2 | $20,000 | $30,000 | ||
| 3 | $30,000 | $20,000 | ||
| 4 | $40,000 | $10,000 | ||
| 5 | $20,000 | $20,000 | ||
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