Question

. Calculate and choose project/s assuming that these two projects are (1) mutually exclusive OR (2) independent.

1. Payback—Acceptable payback is 3 years-- calculate up to two places after the decimal point. Please show on TI calculator

CFs Year	A	B
0	-2050	-4300
1	750	1500
2	760	1518
3	770	1536
4	780	1554

Answer 1

Answer: Project A: Year Cash Inflow 750 Cumulative Cash Inflow 750 1,510 2,280 3,060 760 770 780 Payback Period = 2 years + ($2,050 - $1,510) / $770 Payback Period = 2.70 years Project B: Year Cash Inflow 1,500 1,518 1,536 1,554 Cumulative Cash Inflow 1,500 3,018 4,554 6,108 Payback Period = 2 years + ($4,300 - $3,018) / $1,536 Payback Period = 2.83 years

Scenario 1:
If the projects are mutually exclusive, the project with lowest payback period should be accepted. Project A should be accepted as it has lower payback period.

Scenario 2:
If the projects are Independent, then the projects meeting the crietria should be accepted. In this case, Project A and Project B both can be accepted.