Jan Booth is considering investing in either a storage facility or a car wash facility. Both projects
Question:
Storage facility: Even cash flows of $120,000 per year
Car wash: $112,500, $142,500, $60,000, $120,000, and $90,000
Required:
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?
Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...
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Step by Step Answer:
1 Even cash flows Payback period Original investmentAnnual cash flow 360000120000 30 years ...View the full answer
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Related Book For 
Cornerstones of Cost Management
ISBN: 978-1285751788
3rd edition
Authors: Don R. Hansen, Maryanne M. Mowen
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