Scenario 1 Suppose that a company is considering two different and mutually exclusive projects (X and Y), where both have a five-year life and require an investment of $126,000 The cash flow patterns for each project are given below Project Even cash flows of S42.000 per year Project Y: $72,000, $60,000, $54,000, $30,000, and $18,000 Required: 1. Calculate the payback period for Project X (round to one decimal place) Payback period- 30V years Points:/1 2 Calculate the payback period for Project Y by completing the following table (round unrecovered investment and annual cash flow to nearest dollar and payback period to one decimal place) Year Unrecovered Investment (beginning of year) Annual Cash Flow Time Needed for Payback 126,000V s 54,000% 72000 60,000 1.0 year 09 V year Points616 Thus, the payback for Project Y is less impact on liquidity 1.9years and is shorter than payback for Project X, thus Project Y is less risky and has 3. Now assume that a third project, Project Z becomes available with the same investment outlay and the following annual cash flows (projects, X, Y, and Z are mutually exclusive) Project C: $99,000, $30,000, $75,000, $75,000, $75,000 a. Calculate the payback for Project Z (round to one decimal place) 1.9V years Points11 b Project Z has the same payback as Project Y but should be preferred over Project Y for two reasons. First, Project Z provises the years beyond the payback period than Project Y. Second, Project Z returns more for in the first year, while Project Y returns only $ The extra S that Project Y returns in the first year could be put to productive use, such as investing in another project The payback period thus lgnores the time value of money