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
3
$15,000,000
$8,000,000
4
$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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