Solution-Maximum acceptable payback period

Maximum acceptable payback period

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Question

Two mutually exclusive projects, C and D, will have an initial cost of $20,000 each and are expected to yield thefollowing after-tax cash flows.

Year	C	D
1	$4,000	$8000
2	$6,000	$6,000
3	$5,000	$6,000
4	$4,000	$1,000
5	$6,000	$3,000
6	$2,000	$4,000
7	$2,000
8	$2,000

Based on the payback technique, if the maximum acceptable Payback Period is 4 years , would you accept Project C, ProjectD, neither or both
Based on the NPV technique, if the required rate of return is 12%,would you accept Project C, Project D, neither or both? (7 marks)
Based on the EAA technique,if the required rate of return is 12%, would you accept Project C, Project D, neither or both? (7 marks)

Reference no: EM133057363

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Maximum acceptable payback period

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