3. Problem 11.04 (Payback Period)

Project L requires an initial outlay at t = 0 of $60,000, its expected cash inflows are $12,000 per year for 12 years, and its WACC is 12%. What is the project's payback? Round your answer to two decimal places.

years:

A firm with a WACC of 10% is considering the following mutually exclusive projects:

0

1

2

3

4

5

Project 1	-$250	$45	$45	$45	$195	$195
Project 2	-$550	$200	$200	$135	$135	$135

Select the correct answer.

a. Neither Project 1 nor 2, since each project's NPV < 0.

b. Project 2, since the NPV2 > NPV1.

c. Both Projects 1 and 2, since both projects have IRR's > 0.

d. Project 1, since the NPV1 > NPV2.

e. Both Projects 1 and 2, since both projects have NPV's > 0.