Atlantis Inc. is considering two mutually exclusive projects with the following cash flows: Year 0 1 2 3 4 Project A ($120,000)
$60,000 $40,000 $60,000 $80,000 Project B ($100,000) $60,000 $50,000 $0 $0 If Atlantis accepts projects that pay back in two years or less, which should be undertaken?
1 answer:
Answer:
Project b
Explanation:
The cash payback period calculates how long the amount invested in a project would be recouped from its cummulative cash flows.
Project b should be taken because the amount invested would be recouped in 1.8 years which is less than the 2 years benchmark.
The amount invested in project A would be gotten back in 2.3 years which is greater than the 2 years benchmark. This makes project A unacceptable.
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Cost of machine = $1,000
= 
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)= 
= $75.13
Total NPV = -1000+1492.11+75.13 = $567.24 ≈ $567
Total NPV = -1000+1492.11+75.13 = $567.24 ≈ $567