Choosing between two projects with acceptable payback periods. Shell Camping Gear Inc. is considering two mutually exclusive

projects. Each requires an initial investment $(C{F}_0)$ of $$100,000.$ John Shell, president of the company, has set a maximum payback

period of four years. The cash inflows associated with each project are shown in the table on the next page.

a$.$ Determine the payback period of each project.

b$.$ Which project is acceptable based on payback period?

c$.$ Explain why one of the projects is a better choice than the other.

Solution

a$.$ Determine the payback period of each project.

Project A

b$.$ Which project is acceptable based on payback period?

c$.$ Explain why one of the projects is a better choice than the other.