Payback Period

Jan Booth is considering investing in either a storage facility or a car wash facility. Both projects have a five-year life and require an investment of $380,000. The cash flow patterns for each project are given below.

Storage facility: Even cash flows of $170,000 per year

Car wash: $112,900, $143,200, $67,000, $124,000, and $93,000

Required:

1. Calculate the payback period for the storage facility (even cash flows). Round your answer to one decimal place. ________ 1 years

2. Calculate the payback period for the car wash facility (uneven cash flows). Round your answer to three decimal places. ________ years

Which project should be accepted based on payback analysis?

Car wash, Storage facility, Storage facility

3. What if a third mutually exclusive project, a laundry facility, became available with the same investment and annual cash flows of $200,000?

It has a shorter payback period and provides more cash flow over its life .It has a longer payback period and provides less cash flow over its life. It has a shorter payback period and provides more cash flow over its life.

Now which project would be chosen?

Car wash, Laundry facility, Storage facility, Laundry facility