Suppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below.YEARCASH FLOW (A)CASH FLOW (B)0-$17,000-$17,00018,0002,00027,0005,00035,0009,00043,0009,5001) Calculate the Payback Period of each project. Which project should you accept according to this method? Explain whether the Payback Period is or is not an appropriate method in this case.

Payback period: Number of years required to collect the initial investment. Payback period ignores…

Answered: Suppose that you are working as a…

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter10: The Basics Of Capital Budgeting: Evaluating Cash Flows

Section: Chapter Questions

Problem 1Q

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Suppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below.

YEAR	CASH FLOW (A)	CASH FLOW (B)
0	-$17,000	-$17,000
1	8,000	2,000
2	7,000	5,000
3	5,000	9,000
4	3,000	9,500

1) Calculate the Payback Period of each project. Which project should you accept according to this method? Explain whether the Payback Period is or is not an appropriate method in this case.

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