Calculate the payback period for the following two distinct cash flow steams that both require the same $100,000 initial outlay;

Years         Cash Flows for Project A            Cash Flows for Project B

1                  $25,000                                      $64,000

2                 $55,000                                       $22,000

3                 $20,000                                      $14,000

4                 $150,000                                     $20,000

5                 0                                                  $250,000

Now answer the following questions. Questions to pose:

1. What is the payback period for each project?

2. Which project should you select using a three-year cutoff period?

3. What is the payback period of each project if the initial investment was $150,000?

4. Assuming you have a four-year payback rule, which project would you accept?

5. Are there any issues with this decision?