Question
Bill Williams has the opportunity to invest in project A that costs $7,500today and promises to pay $2,200, $2,600, $2,600,$2,100 and $1,800 over the next
Bill Williams has the opportunity to invest in project A that costs $7,500today and promises to pay $2,200, $2,600, $2,600,$2,100 and $1,800 over the next 5 years. Or, Bill can invest $7,500 in project B that promises to pay $1,600, $1,600, $1,600, $3,500 and $4,100 over the next 5 years. (Hint: For mixed stream cashinflows, calculate cumulative cash inflows on a year-to-year basis until the initial investment is
recovered.)
a.How long will it take for Bill to recoup his initial investment in project A?
b.How long will it take for Bill to recoup his initial investment in project B?
c.Using the payback period, which project should Bill choose?
d.Do you see any problems with his choice?
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