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Two new software projects are proposed to a young, start-up company. The Alpha project will cost...

Two new software projects are proposed to a young, start-up company.

The Alpha project will cost $280,000 to develop and is expected to have annual net cash flow of $40,000.

The Beta project will cost $135,000 to develop and is expected to have annual net cash flow of $40,000.

The company is very concerned about their cash flow.

Calculate the payback period for each project. Which project is better from a cash flow standpoint? (Round your answers to 2 decimal places.)

Payback period for project Alpha _____years

Payback period for project Beta ______years

The better project is______

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Answer #1

Answer:

Payback Period= Initial Investment/Net Annual Cash Inflows

Project Alpha=$280,000/$40,000

                          =7.00 years

Project Beta=$135,000/$40,000

                          =3.37 years

The Better Project is Beta because the it is the shortest amount both the projects to recover the investment costs.

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