Question
ABC Manufacturing is considering two projects, Project X and Project Y. Both projects require an initial investment of GBP 30,000. The following are the expected
ABC Manufacturing is considering two projects, Project X and Project Y. Both projects require an initial investment of GBP 30,000. The following are the expected cash inflows:
Year | Cash flows (Project X) | Cash flows (Project Y) |
(Initial Investment) | (30,000) | (30,000) |
1 | 10,000 | 15,000 |
2 | 10,000 | 10,000 |
3 | 5,000 | 15,000 |
4 | 5,000 | 10,000 |
a. Calculate the payback period for both projects.
b. Which project should ABC Manufacturing invest in if their payback period threshold is 3 years? Justify your answer.
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Fundamentals of Financial Management
Authors: Eugene F. Brigham, Joel F. Houston
12th edition
978-0324597714, 324597711, 324597703, 978-8131518571, 8131518574, 978-0324597707
