Question: Executive Summary In the Executive Summary, based on the information given and your computations, identify the project that should be chosen by RAVI. Why? (Hint:
Executive Summary
In the Executive Summary, based on the information given and your computations, identify the project that should be chosen by RAVI. Why? (Hint: Include discussions of time, yield, and dollars) (3 points
Part III. Project Selection
- Payback Method (Option A = 2.04 years):
Payback Method: This is the time it takes for the project to recoup its initial investment from net cash inflows. For Option B, the payback period is calculated as follows:
Year 1: $210,000
Year 2: $190,000
Year 3: $180,000
The cumulative cash inflow at the end of Year 2 is $400,000, which is less than the initial investment of $450,000. Therefore, the payback period extends into Year 3. The remaining amount to be recovered at the beginning of Year 3 is $50,000. The payback period is therefore 2 years plus the proportion of Year 3 needed to recover the remaining $50,000, which is $50,000/$180,000 = 0.28 years. So, the payback period for Option B is 2.28 years.
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
Study Help