Exercise Example - Capital Budgeting Project Analysis - Chapter 5

As director of capital budgeting, you are reviewing three potential investment projects with the following cost and cash flow projections.

Cash Flow	Project A	Project B	Project C
Investment Cost	($500,000)	($375,000)	($475,000)
Year One Cash Flow	$200,000	$175,000	$250,000
Year Two Cash Flow	$180,000	$50,000	$200,000
Year Three Cash Flow	$100,000	$50,000	$75,000
Year Four Cash Flow	$80,000	$50,000	$30,000
Year Five Cash Flow	$140,000	$300,000	$30,000

1. Calculate the Payback Period for each project.

2. If the discount rate for all three projects is 12.5%, calculate the Net Present Value for each project.