Payback method personal finance problem

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Long-term investment decision, payback method Personal Finance Problem Bill Williams has the opportunity to invest in project A that costs $5,500 today and promises to pay annual cash flows of $2,100, $2,500, $2,500, $2,100 and $1,900 over the next 5 years. Or, Bill can invest $5,500 in project B that promises to pay annual cash flows of $1,400, $1,400, $1,400, $3,600 and $4,000 over the next 5 years. ( Hint: For mixed stream cash inflows, calculate cumulative cash inflows on a year-to-year basis until the initial investment is recovered. )

a. How long will it take for Bill to recoup his initial investment in project A?

b. How long will it take for Bill to recoup his initial investment in project B?

c. Using the payback period, which project should Bill choose?

d. Do you see any problems with his choice?

Reference no: EM132036960

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