COLLAPSE

Alabama Co. is reviewing a capital investment of $100,000. This project's projected cash flows over a five-year period are estimated at $35,000 each year.

Required:

(a) Calculate the payback period.

(b) Calculate the break-even time. Assume a 12% hurdle rate and use the table below:

Periods

PresentValue of 1 at 12%

1

0.8929

2

0.7972

3

0.7118

4

0.6355

5

0.5674

(c) Using the results in (a) and (b), make a recommendation for the project.