Bill Williams has the opportunity to invest in project A that costs $6,900 today and promises to pay $2,100​, $2,400​, $2,400​, $2,000 and $1,800 over the next 5 years. ​ Or, Bill can invest $6,900 in project B that promises to pay $1,500​, $1,500​, $1,500​, $3,600 and $4,000 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. How long will it take for Bill to recoup his initial investment in project A?   b. How long will it take for Bill to recoup his initial investment in project​ B?   c. Using the payback​ period, which project should Bill​ choose?   d. Do you see any problems with his​ choice?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Bill Williams has the opportunity to invest in project A that costs $6,900
today and promises to pay $2,100​, $2,400​, $2,400​, $2,000 and $1,800
over the next 5 years. ​ Or, Bill can invest $6,900 in project B that promises to pay $1,500​, $1,500​, $1,500​, $3,600 and $4,000 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. How long will it take for Bill to recoup his initial investment in project A?
 
b. How long will it take for Bill to recoup his initial investment in project​ B?
 
c. Using the payback​ period, which project should Bill​ choose?
 
d. Do you see any problems with his​ choice?
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