The payback period for each project

Question

The following information relates to three (3) possible capital expenditure projects. Because of capital rationing only one project can be accepted.

 

                   Projects

                                                                A                    B                      C

Initial cost                                    $200,000         $230,000         $180,000

            Expected life                   5 years             5 years             4 years

Scrap value expected                $10,000           $15,000             $8,000

 

Expected cash inflows                                $                     $                       $

End Year         1                          80,000           100,000             55,000

                        2                          70,000             70,000             65,000

                        3                          65,000             50,000             95,000

                        4                          60,000             50,000           100,000

                        5                          55,000             50,000                 -

 

The company estimates its cost of capital is 18% and discount rate factors are:

 

            Year 1             0.8475

            Year 2             0.7182

            Year 3             0.6086

            Year 4             0.5158

            Year 5             0.4371

 

Calculate:

 

1. The pay back period for each project
2. The Accounting Rate of Return (ARR) for each project
3. The Net Present Value (NPV) of each project
4. Which project should be accepted – give reasons
5. Explain the factors management would need to consider – in addition to the financial factors before making a final decision on a project.                               

 

Answer 1

I need answers the payback period for each project