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Would decision change under the payback method

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Reference no: EM132518652

Assume a $200,000 investment and the following cash flows for two alternative capital projects:

Year                 Project A                     Project B

1                      $60,000               $40,000

2                       90,000                70,000

3                         50,000                80,000

4                             40,000             20,000

Question a. Calculate the payback period for each project.

Question b. Using the payback method, if the projects are mutually exclusive, which project would you select and why?

Question c. If the year four cash flows were $100,000 for Project A and $500,000 for Project B, would your decision change under the payback method? Why or why not?

Reference no: EM132518652

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