Question
Romanos Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $8,000,000 for
Romanos Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $8,000,000 for the year. Lyssa Bart,
staff analyst at Romanos, is preparing an analysis of the three projects under consideration by Chester Romanos, the company's owner.
| Project A | Project B | Project B | |
| Projected cash outflow | |||
| Net Intial Investment | $ 4,000,000.00 | $ 3,000,000.00 | $ 4,000,000.00 |
| Projected cash inflow | |||
| Year 1 | $ 2,550,000.00 | $ 800,000.00 | $ 2,100,000.00 |
| Year 2 | $ 2,550,000.00 | $ 1,600,000.00 | $ 2,100,000.00 |
| Year 3 | $ 2,550,000.00 | $ 1,000,000.00 | $ 50,000.00 |
| Year 4 | $ 2,550,000.00 | $ 25,000.00 | |
| Required Rate of Return | 6% | 6% | 6% |
Requirement 1. Because the company's cash is limited, Romanos thinks the payback method should be used to choose between the capital budgeting projects.
Calculate the payback period for each of the three projects. Ignore income taxes. (Round your answers to two decimal places.)
| Project A | ??? | years |
| Project B | ??? | years |
| Project C | ??? | years |
Using the payback method, which project(s) should Romanos choose?
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