Chapter 10, Problem 10.4P

Long-term investment decision, payback method Bill Williams has the opportunity to invest in project A, which costs $9,000 today and promises to pay $2,200, $2,500, $2,500, $2,000, and $1,800 over the next 5 years. Or Bill can invest $9,000 in project B. which promises to pay $1,500, $1,500, $1,500, $3,500, and $4,000 over the next 5 years.

1. a. How long will it take for Bill to recoup his initial investment in project A?
2. b. How long will it take for Bill to recoup his initial investment in project B?
3. c. Using the payback period, which project should Bill choose?
4. d. Do you see any problems with his choice?