1) From the Payback worksheet, would you Accept or Reject Project A?

A) Accept

B) Reject

2) From the Payback worksheet, what is the payback period of Project B?

A) 3.1 years

B) 3.5 years

3) 2.8 years

4) 3.0 years

3) From the Payback worksheet, what is the Rate of Return of Project B?

A) 32.0%

B) 27.7%

C) 24.3%

D) 5.4%

Exhibit 2.3A Example comparing Two Projects Using the Payback Method Project A Project B Formulas Investment $750,000 $250,000 Annual savings $215,000 $80,000 Project A: Payback = (D7/08) Payback Period Project B: Payback = (F7/F8) Rate of Return Project A: Rate of Return = (D8/07) Project B: Rate of Return = (F8/F7) Accept/Reject Explanation Project A: Accept/Reject: Accept is Payback 15% Project B: * Note: Payback does not use the time value of money ** Note: Rate of return is reciprocal of Payback