Jan Booth is considering investing in either a storage facility or a car wash facility. Both projects have a five-year life and require an investment of $360,000. The cash flow patterns for each project are given below.
Storage facility: Even cash flows of $120,000 per year
Car wash: $112,500, $142,500, $60,000, $120,000, and $90,000
1. Calculate the payback period for the storage facility (even cash flows).
2. Calculate the payback period for the car wash facility (uneven cash flows). Which project should be accepted based on payback analysis? Explain.
3. What if a third mutually exclusive project, a laundry facility, became available with the same investment and annual cash flows of $150,000? Now which project would be chosen?