Payback period cutoff is 2 years;
So we will directly check for 2 years cashflow (if the sum is positive, the project can be taken up)
A = -15,300 + 8,700 + 7,400 = $800
B = -10,700 + 5,300 + 4,300 = -$1,300
Therefore, project A should be chosen by this method
From NPV perspective,
Year | Project A | Project B | PV of CF for Project A | PV of CF for Project B |
0 | -15,300.00 | -10,700.00 | -15,300.00 | -10,700.00 |
1 | 8,700.00 | 5,300.00 | 7,565.22 | 4,608.70 |
2 | 7,400.00 | 4,300.00 | 5,595.46 | 3,251.42 |
3 | 3,100.00 | 4,800.00 | 2,038.30 | 3,156.08 |
NPV | -101.02 | 316.19 |
Therefore, project B should be chosen by this method
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