Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to

$6,000,000

for the year.

Lauren

Babson,

staff analyst at

Cranes,

is preparing an analysis of the three projects under consideration by

Cullin

Cranes,

the company's owner.

Requirement 1. Because the company's cash is limited,

Cranes

thinks the payback method should be used to choose between the capital budgeting projects.

Calculate the payback period for each of the three projects. Ignore income taxes. (Round your answers to two decimal places.)

Project A		years
Project B		years
Project C		years

Using the payback method, which project(s) should

Cranes

choose?

Data

Project A

Project B

Project C

Projected cash outflow

Net initial investment

$3,000,000

$1,500,000

$4,000,000

Projected cash inflows

Year 1

$1,000,000

$400,000

$2,000,000

Year 2

1,000,000

900,000

2,000,000

Year 3

1,000,000

800,000

200,000

Year 4

1,000,000

100,000

Required rate of return

8%

8%

8%