Jan Booth is considering investing in either a storage facility or a car wash facility. Both projects have a five-year life and require an investment of $360,000. The cash flow patterns for each project are given below.Storage facility: Even cash flows of $120,000 per yearCar wash: $112,500, $142,500, $60,000, $120,000, and $90,000Required:Calculate the payback period for the storage facility (even cash flows).yearsCalculate the payback period for the car wash facility (uneven cash flows). Round your answer to three decimal places. yearsWhich project should be accepted based on payback analysis? What if a third mutually exclusive project, a laundry facility, became available with the same investment and annual cash flows of $150,000?Now which project would be chosen?

Time period required for collecting the amount of investment is known as payback period.

Answered: What if a third mutually exclusive…

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 10E: Roberts Company is considering an investment in equipment that is capable of producing more...

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Jan Booth is considering investing in either a storage facility or a car wash facility. Both projects have a five-year life and require an investment of $360,000. The cash flow patterns for each project are given below.

Storage facility: Even cash flows of $120,000 per year

Car wash: $112,500, $142,500, $60,000, $120,000, and $90,000

Required:

Calculate the payback period for the storage facility (even cash flows).
years
Calculate the payback period for the car wash facility (uneven cash flows). Round your answer to three decimal places.
years

Which project should be accepted based on payback analysis?

What if a third mutually exclusive project, a laundry facility, became available with the same investment and annual cash flows of $150,000?

Now which project would be chosen?

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