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David Machineries is faced with two independent investment opportunities. The company has an investment policy which requires acceptable projects to recover all costs within 3
David Machineries is faced with two independent investment opportunities. The company has an investment policy which requires acceptable projects to recover all costs within 3 years. The company uses the payback method to assess potential projects and utilizes a discount rate of 10 percent. The cash flows for the two projects are:
Year | Project A | Project B |
0 | -$100,000 | -$80,000 |
1 | 40,000 | 50,000 |
2 | 40,000 | 20,000 |
3 | 40,000 | 30,000 |
4 | 30,000 | 0 |
Which investment project should the company invest in?
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