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Amanda [17]
3 years ago
14

X-treme Vitamin Company is considering two investments, both of which cost $20,000. The cash flows are as follows: Year Project

A Project B 1 $ 23,000 $ 20,000 2 10,000 9,000 3 10,000 15,000 Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a-1. Calculate the payback period for Project A and Project B. (Round your answers to 2 decimal places.) a-2. Which of the two projects should be chosen based on the payback method
Business
1 answer:
antiseptic1488 [7]3 years ago
6 0

Answer:

Project A = 0.87 years

Project B =  1 year

2 Project should be chosen because it has a shorter payback period.

Explanation:

Payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative cash flows.

For project A, the payback period is $20,000 / $23,000 = 0.87 years

For project B, the payback period is $20,000 / $20,000 = 1 year

Project should be chosen because it has a shorter payback period.

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