Neil Corporation has three projects under consideration. The cash flows for each project are shown in the following table. The firm has a 16% cost of capital. Calculate each project’s payback period. Which project is preferred according to this method?
Neil Corporation has three projects under consideration. The cash flows for each project are shown in the following table. The firm has a 16% cost of capital. Calculate each project’s payback period. Which project is preferred according to this method?
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
Problem 1PS
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Neil Corporation has three projects under consideration. The cash flows for each project are shown in the following table. The firm has a 16% cost of capital.
- Calculate each project’s payback period. Which project is preferred according to this method?
Transcribed Image Text:Initial in-
vestment
(CFO)
Year (1)
1
234
5
Project Project B Project
A
C
$40,000
-$40,000
Cash in-
flows (CF)
$13,000 $7,000
13,000 10,000
13,000 13,000
13,000 16,000
13,000 19,000
$40,000
$19,000
16,000
13,000
10,000
7,000
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