Corporate Finance Assignment/ Professional Essay Writers
The long-term investment decision, payback method Personal Finance Problem Bill Williams has the opportunity to invest in project A that costs $8,300 today and promises to pay $2,300 $2,600, $2,600, $2,00 and $1,800 over the next 5 years. Or, Bill can invest $8,300 in project B that promises to pay $1,600, $1,600, $1,600, $3,700 and $3,900 over the next 5 years.
(Hint: For mixed stream cash inflows, calculate cumulative cash inflows on a year-to-year basis until the initial investment is recovered.)
a. For Bill to recoup his initial investment in project A, it will take? years. (Round to two decimal places.)
b. For Bill to recoup his initial investment in project B, it will take? years. (Round to two decimal places.)
c. Using the payback period, which project should Billchoose? (Select the best answer below.)
Project Upper A would be preferred over project Upper B because its payback period is longer.
Project Upper B would be preferred over project Upper A because its payback period is shorter.
d. Do you see any problems with his choice? (Select the best answer below.)
A. One strength of the payback method is that it disregards expected future cash flows as in the case of project B.
B. One weakness of the payback method is that it disregards expected future cash flows as in the case of project B.
C. One strength of the payback method is that it disregards expected future cash flows as in the case of project A.
D. One weakness of the payback method is that it takes into account the expected future cash flows as in the case of project B. Get Finance Help Today
