Question

Choosing between two projects with acceptable payback periods Shell Camping Gear, Inc., is considering two mutually exclusive projects. Each requires an initial investment of $140,000. John Shell, president of the company, has set a maximum payback period of 4 years. The after-tax cash inflows associated with each project are shown in the following table: a. Determine the payback period of each project. b. Because they are mutually exclusive, Shell must choose one. Which should the company invest in? a. The payback period of project Aisyears. (Round to two decimal places.) Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Year Cash inflows (CF) Project A Project B $20,000 $50,000 $30,000 $40,000 $40,000 $30,000 $50,000 $20,000 $30,000 $30,000 Print Done

Answer 1

Project A Year CF Cumulative cash flow 0 (140,000.00) (140,000.00) 20,000.00 (120,000.00) 30,000.00 (90,000.00) 40,000.00 (50,000.00) 50,000.00 51 30,000.00 30,000.00 4.00 Project B Year CF Cumulative cash flow 0 (140,000.00) (140,000.00) 50,000.00 (90,000.00) 40,000.00 (50,000.00) 30,000.00 (20,000.00 20,000.00 5130000.00 30,000.00 4.00

Choose any project