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Three projects have cash flows as indicated in the table below. Calculate the payback period for each project: a. Without discounting b. With discounting at
Three projects have cash flows as indicated in the table below. Calculate the payback period for each project:
a. Without discounting
b. With discounting at 8%
c. Net present value (NPV), using an 8% discount rate
d. Which project would be preferred using each method?
What do the results suggest about the payback method in general?
Year | Project A | Project B | Project C |
0 | $ (2,000,000.00) | $ (1,500,000.00) | $ (2,500,000.00) |
1 | $ 500,000.00 | $ 200,000.00 | $ 1,000,000.00 |
2 | $ 550,000.00 | $ 350,000.00 | $ 1,000,000.00 |
3 | $ 600,000.00 | $ 500,000.00 | $ 500,000.00 |
4 | $ 650,000.00 | $ 650,000.00 | $ 100,000.00 |
5 | $ 700,000.00 | $ 800,000.00 | $ 100,000.00 |
6 | $ 750,000.00 | $ 950,000.00 | $ 100,000.00 |
7 | $ 800,000.00 | $ 1,100,000.00 | $ 100,000.00 |
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