Comparing Two ProjectsUsing Payback Method

- J L M Project A: Payback - (D8/D9) Project B: Payback = (FB/F 9) A B D E F G H 1 Exhibit 2.3 A 2 3 Example Comparing Two Projects Using the Payback Method 4 5 Project A Project B 6 7 8 Investment $700,000 $400,000 9 Annual savings $225,000 $110,000 10 11 Payback period" 12 13 Rate of return * 32.1% 27.5 14 15 Project A: Accept. Less than 5 years and exceeds 15% desired rate 16 17 Project B: Accept. Less than 5 years. 18 19 Note: Payback does not use the time value of money 20 Note: Rate of return is reciprocal of Payback 21 22 3.1 years 3.6 years Project A: Rate of return - D9/D8) Project B: Rate of return - (F9/F8)