# 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

Hence, cumulative inflows are ascertained by adding the cash inflows of one year with the cash flows of the next year

Step 2

Hence, payback period for Project B is 2.67 years which is ascertained by dividing the difference of cash outlay and cumulative cash inflows with the difference of cumulative cash inflows immediate larger than cash outflows and cumulative cash inflows and adding the year when cash outlay comes under the cumulative cash inflows

Step 3

Hence, cumulative inflows are ascertained by adding the cash in...

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