# Your company is currently considering two investment projects. Each project requires an upfront expenditure of \$25 million. You estimate that the cost of capital is 10% and the investments will produce the following after tax cash flows:YearProject AProject B1\$5,000,000\$20,000,0002\$10,000,000\$10,000,0003\$15,000,000\$8,000,0004\$20,000,000\$6,000,000 a) Calculate the payback period for both projects, then compare to identify which project the firm should undertake. [Note: you are supposed to show every step of your calculation and interpret the result.]

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Your company is currently considering two investment projects. Each project requires an upfront expenditure of \$25 million. You estimate that the cost of capital is 10% and the investments will produce the following after tax cash flows:

 Year Project A Project B 1 \$5,000,000 \$20,000,000 2 \$10,000,000 \$10,000,000 3 \$15,000,000 \$8,000,000 4 \$20,000,000 \$6,000,000

a) Calculate the payback period for both projects, then compare to identify which project the firm should undertake. [Note: you are supposed to show every step of your calculation and interpret the result.]

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Step 1

Payback period can be defined as the time length required by the project to recover the total cash outflow made at the time of starting of project.

Step 2

The table below shows the cash inflow for each year and cumulative cash flows for project A.

Step 3

The formula to calculate paybac...

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