Payback period

The hortar a project's payback, the better the project is. However, payback has 3 main disadvantages: (1) All dollars received in different years are given al weight (2) Cash flows beyond the payback year are ignored. (3) The payback merely indicates when a project's Investment will be recovered. There is no necessary relationship between a given payback and Investor wealth maximization. A variant of the regular payback is the discounted payback. Unlike regular payback, the discounted payback considers Cup costs. However, the discounted payback still disregards cash flows beyond the payback year. In addition, there is no spedific payback rule to justify project acceptance. Both methods provide information about hiny B and risk. Quantitative Problem: Bellinger Industries is considering two projects for indusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cast flows are shown on the time line below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 10%. 1 23 Project A Project -1,050 -1,050 600 200 380 3 15 200 350 250 700 What is Project A's payback? Do not round intermediate calculations, Round your answer to four decimal places What is Project A's discounted payback? Do not round intermediate calculations. Round your answer to four decimal places years What is Project B's payback? Do not found intermediate calculations. Round your answer to four decimal places. years What is Project B's discounted payback? Do not round intermediate calculations. Round your answer to four decimal places years Save & Continue Continue without saving