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What is the payback period for project alpha

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Halifax Regional Municipality is assessing two project proposals - Project Alpha and Project Beta. Project Alpha has a lower initial investment than Project Beta and is expected to generate a constant stream of cash flows over its economic life. Project Beta is expected to generate lower cash flows in the initial years and higher cash flows as the project mature relative to Project Alpha. Below are the details regarding capital outlay and the cash flows for the two Projects:

 

Cash flows

 

Year

Project alpha

project beta

0

-10,000

-15,000

1

6,000

3,000

2

6,000

5,000

3

6,000

7,000

4

6,000

8,000

Assume that the required rate of return for both projects is 10%

a) What is the payback period for project alpha

b) What is the payback period for project beta

c) What is the discounted payback period for project alpha

d) What is the discounted payback period for project beta

e) Using your answers (Payback and discounted payback periods), which project should I take ?

Reference no: EM133113229

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