Question: Shell is considering two mutually exclusive projects , A and B. Each requires an initial investment of $100,000. The company's president set a maximum payback
Shell is considering two mutually exclusive projects, A and B. Each requires an initial investment of $100,000. The company's president set a maximum payback period of 5 years. If the company expects to receive the following after-tax cash inflows from each project, what is each project's simple payback period?
| Year | Cash inflows project A | Cash inflows project B |
| 1 | $10,000 | $40,000 |
| 2 | $20,000 | $30,000 |
| 3 | $30,000 | $20,000 |
| 4 | $40,000 | $10,000 |
| 5 | $20,000 | $20,000 |
| a. | Payback periods: A=4years, B=5years | |
| b. | Both projects have a payback period of 4 years | |
| c. | Both projects have a payback period of 5 years | |
| d. | Payback periods: A=5years, B=4years |
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