ng-term investment decision, payback method Personal Finance Problem Bill Williams has the opportunity to invest in project A that costs $6,800 today and promises to pay $2,100, $2,500, $2,500, $2,000 and $1,800 over the next 5 years. Or, Bill can invest $6,800 in ject B that promises to pay $1,500, $1,500, $1,500, $3,500 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.) How long will it take for Bill to recoup his initial investment in project A? How long will it take for Bill to recoup his initial investment in project B? Using the payback period, which project should Bill choose? Do you see any problems with his choice?

ng-term investment decision, payback method Personal Finance Problem Bill Williams has the opportunity to invest in project A that costs $6,800 today and promises to pay $2,100, $2,500, $2,500, $2,000 and $1,800 over the next 5 years. Or, Bill can invest $6,800 in ject B that promises to pay $1,500, $1,500, $1,500, $3,500 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.) How long will it take for Bill to recoup his initial investment in project A? How long will it take for Bill to recoup his initial investment in project B? Using the payback period, which project should Bill choose? Do you see any problems with his choice?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 21P

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