P10-4 (similar to)

Long-term investment decision, payback method Personal Finance ProblemBill Williams has the opportunity to invest in project A that costs

$6,600

today and promises to pay

$2,200,

$2,600,

$2,600,

$2,000

and

$1,900

over the next 5 years. Or, Bill can invest

$6,600

in project B that promises to pay

$1,400,

$1,400,

$1,400,

$3,700

and

$4,100

over the next 5 years.

(Hint:

For mixed stream cash inflows, 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?

a.For Bill to recoup his initial investment in project A, it will take

nothing

years.(Round to two decimal places.)