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Q1) ABC Company is thinking of two long-term investment proposals. Initial outlay for Project L is $75,000, salvage value for project is $25,000, and expected after tax cash returns (including salvage value) are given below throughout its expected 4 year useful life. Project M, if chosen will have to be replaced after 5 years and cost $95,000.  It will have no salvage value.  Its expected cash inflows are also given below.

YEAR
PROJECT L
PROJECT M
1
$25,000
31,000
2
30,000
35,000
3
25,000
40,000
4
30,000
23,000
5
  15,000

Determine payback period (to nearest tenth of a year) for each project? Using payback method as selection criteria, which project would you choose?

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  • Reference No.:- M919582

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