Q.Because the company’s cash is limited, Andrews thinks the payback method should be used to choose between the capital budgeting projects.a. What are the benefits and limitations of using the payback method to choose between projects? Payback and NPV methods, no income taxes. (CMA, adapted) Andrews Construction is analyzingits capital expenditure proposals for the purchase of equipment in the coming year. The capital budget islimited to $5,000,000 for the year. Lori Bart, staff analyst at Andrews, is preparing an analysis of the threeprojects under consideration by Corey Andrews, the company's owner.HomeInsertPage LayoutFormulasDataReviewViewProject AProject BProject C2 Projected cash outflow3 Net initial investment$3,000,000$1,500,000$4,000,0005 Projected cash inflows:6 Year 17 Year 28 Year 3Year 4$1,000,0001,000,0001,000,0001,000,000$ 400,000900,000800,000$2,000,0002,000,000200,000100,0009.1011 Required rate of return10%10%10%

Definition: Payback period: Payback period is the expected time period which is required to…

Answered: Payback and NPV methods, no income…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 17E: Postman Company is considering two independent projects. One project involves a new product line,...

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Q.Because the company’s cash is limited, Andrews thinks the payback method should be used to choose between the capital budgeting projects.
a. What are the benefits and limitations of using the payback method to choose between projects?

Payback and NPV methods, no income taxes. (CMA, adapted) Andrews Construction is analyzing
its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is
limited to $5,000,000 for the year. Lori Bart, staff analyst at Andrews, is preparing an analysis of the three
projects under consideration by Corey Andrews, the company's owner.
Home
Insert
Page Layout
Formulas
Data
Review
View
Project A
Project B
Project C
2 Projected cash outflow
3 Net initial investment
$3,000,000
$1,500,000
$4,000,000
5 Projected cash inflows:
6 Year 1
7 Year 2
8 Year 3
Year 4
$1,000,000
1,000,000
1,000,000
1,000,000
$ 400,000
900,000
800,000
$2,000,000
2,000,000
200,000
100,000
9.
10
11 Required rate of return
10%
10%
10%

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