FCB Industries is evaluating two projects based on the discounted payback method. The company’s cost of capital is 12%. Project A is deemed to be of average risk, but Project B has a very high risk profile. The company has decided to adjust the discount rate by 2% for Project B. The investments and operating cash flows follow: Project A Project B Investment ($5,000) ($6,000) Cash flows 1 $2,500 $3,000 2 $2,000 $2,250 3 $1,500 $1,750 4 $1,000 $1,500 Calculate the discounted payback period for Project B Group of answer choices 3.51 years 3.30 years 3.10 years 3.48 years 3.69 years 2.43 years 3.15 years 3.81 years
FCB Industries is evaluating two projects based on the discounted payback method. The company’s cost of capital is 12%. Project A is deemed to be of average risk, but Project B has a very high risk profile. The company has decided to adjust the discount rate by 2% for Project B. The investments and operating cash flows follow: Project A Project B Investment ($5,000) ($6,000) Cash flows 1 $2,500 $3,000 2 $2,000 $2,250 3 $1,500 $1,750 4 $1,000 $1,500 Calculate the discounted payback period for Project B Group of answer choices 3.51 years 3.30 years 3.10 years 3.48 years 3.69 years 2.43 years 3.15 years 3.81 years
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 22E
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FCB Industries is evaluating two projects based on the discounted payback method. The company’s cost of capital is 12%. Project A is deemed to be of average risk, but Project B has a very high risk profile. The company has decided to adjust the discount rate by 2% for Project B. The investments and operating
|
|
Project A |
Project B |
|
Investment |
($5,000) |
($6,000) |
|
Cash flows |
|
|
|
1 |
$2,500 |
$3,000 |
|
2 |
$2,000 |
$2,250 |
|
3 |
$1,500 |
$1,750 |
|
4 |
$1,000 |
$1,500 |
Calculate the discounted payback period for Project B
Group of answer choices
3.51 years
3.30 years
3.10 years
3.48 years
3.69 years
2.43 years
3.15 years
3.81 years
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