Long-term investment decision, payback method Personal Finance Problem Bill Williams has the opportunity to invest in project A that costs $9,300 today and promises to pay $2,100, $2,400, $2,400, $2,100 and $1,900 over the next 5 years. Or, Bill can invest $9,300 in project B that promises to pay $1,300, $1,300, $1,300, $3,600 and $4,000 over the next 5 years. (Hint: For mixed stream cash inflows, calculate cumulative cash inflows on a year-to-year basis until the initial investment is recovered.)

The wrong and correct answers are included.

Can someone please breakdown the formula how they got the correct answer?

Long-term investment decision, payback method Personal Finance Problem Bill Williams has the opportunity to invest in project A that costs $9,300 today and promises to pay $2,100, $2,400, $2,400, $2,100 and $1,900 over the next 5 years. Or, Bill can invest $9,300 in project B that promises to pay $1,300, $1,300, $1,300, $3,600 and $4,000 over the next 5 years. (Hint: For mixed stream cash inflows, calculate cumulative cash inflows on a year-to-year basis until the initial investment is recovered.) a. b. c. d. How long will it take for Bill to recoup his initial investment in project A? How long will it take for Bill to recoup his initial investment in project B? Using the payback period, which project should Bill choose? Do you see any problems with his choice? Year 0 Cash Flows Proj A Proj B ($9,300) ($9,300) 1 $ 2,100.00 $ 1,300.00 2 $ 2,400.00 $ 1,300.00 3 $ 2,400.00 $ 1,300.00 4 $ 2,100.00 $ 3,500.00 5 $ 1,900.00 $ 4,000.00 Cumulative cash flows Proj A Proj B ($9,300.00) ($9,300.00) ($7,200.00) ($8,000.00) ($4,800.00) ($6,700.00) ($2,400.00) ($4,300.00) ($2,100.00) ($700.00) $1,600.00 $3,300.00 X PAYBACK PERIOD recouped at year 4 B recouped at year 4 4.14 formular 4.194 formulas 3+(2400/2100) 3+(4300/3600) Correct ans 4.16 4.45