TOMs Tomatoes and Herbs, LLC is considering investing in two alternative projects to improve the processing and packaging of TOMs Old World Spaghetti Sauce. Investment A has a lifespan of 10 years and initial costs of $100,000. Investment B has a lifespan of 8 years and initial costs of $50,000. TOMs Tomatoes and Herbs, LLC assumes an 8 percent discount rate on potential investments.

Investment A Projected After Tax Benefits per year

Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9	Year 10
$5,000	$5,000	$5,000	$10,000	$15,000	$30,000	$60,000	$30,000	$10,000	$5,000

Investment B Projected After Tax Benefits per year

Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8
$20,000	$10,000	$10,000	$5,000	$5,000	$2,500	$2,500	$1,250

1)What is the Payback Period of each potential investment by TOMs Tomatoes and Herbs, LLC? Hint: Think about how many years and months it takes to earn back the initial cost of each investment. Round to the nearest tenth.

Investment A: Investment B:

2) If TOMs Tomatoes and Herbs, LLC has a required Payback Period of 6 years, which project would be chosen and why?

3) Calculate annual depreciation for each investment using the straight line depreciation method. The salvage value for Investment A is $10,000 and for Investment B, the salvage value is $5,000

Annual Depreciation for Investment A

Annual Depreciation for Investment B