Question
VWX Inc. is considering two projects, Project G and Project H. Both projects require an initial investment of GBP 65,000. The projected cash flows are
VWX Inc. is considering two projects, Project G and Project H. Both projects require an initial investment of GBP 65,000. The projected cash flows are as follows:
Year | Cash flows (Project G) | Cash flows (Project H) |
(Initial Investment) | (65,000) | (65,000) |
1 | 20,000 | 15,000 |
2 | 15,000 | 25,000 |
3 | 10,000 | 20,000 |
4 | 5,000 | 15,000 |
a. Calculate the payback period for both projects.
b. Based on the payback period and a cutoff period of 3 years, which project should VWX Inc. choose? Explain your reasoning.
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Horngrens Accounting
Authors: Tracie L. Miller Nobles, Brenda L. Mattison, Ella Mae Matsumura
11th edition
978-0133851151, 013385115X, 978-0133866889
