Payback $=$ years prior $to+\frac{\text{U}\text{n}\text{r}\text{e}\text{c}\text{o}\text{v}\text{e}\text{r}\text{e}\text{d}costat\text{s}\text{t}\text{a}\text{r}\text{t}of\text{y}\text{e}\text{a}\text{r}}{\text{C}\text{a}\text{s}\text{h}\text{f}\text{l}\text{o}\text{w}\text{d}\text{u}\text{r}\text{i}\text{n}\text{g}\text{f}\text{u}\text{l}\text{l}\text{r}\text{e}\text{c}\text{o}\text{v}\text{e}\text{r}\text{y}\text{y}\text{e}\text{a}\text{r}}$

full recovery

The

shorter

$$ a project's payback, the better the project is$.$ However, payback has $3$ main disadvantages: $(1)$ All dollars received in different years are given $$ weight. $(2)$ Cash payback year are ignored. $(3)$ The payback merely indicates when a project's investment will be refovered. There is no necessary relationship between a given payback and investor wealth

A variant of the regular payback is the discounted payback. Unlike regular payback, the discounted payback considers

capital

$$ costs. However, the discounted payback still disregards beyond $$ the payback year. In addition, there is no specific payback rule to justify project acceptance. Both methods provide information about

liquidity

$$ and risk.

Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after$-$tax cash flows ar line below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have $4-$year lives, and they have risk similar to the firm's average project. Bellinger's WACC is $9\%.$

$$

What is Project A$\text{'}$s payback? Do not round intermediate calculations. Round your answer to four decimal places.

$$ years

What is Project A$\text{'}$s discounted payback? Do not round intermediate calculations. Round your answer to four decimal places.

$$ years

What is Project B$\text{'}$s payback? Do not round intermediate calculations. Round your answer to four decimal places.

$$ years

What is Project B$\text{'}$s discounted payback? Do not round intermediate calculations. Round your answer to four decimal places.

$$ years