Question: The cash flows associated with two different projects are as follows: Cash Flows Project A ($ in millions) Project B ($ in millions) Initial Outflow

The cash flows associated with two different projects are as follows:

Cash Flows

Project A ($ in millions)

Project B ($ in millions)

Initial Outflow

210

80

Year 1

42

20

Year 2

70

40

Year 3

66

40

Year 4

64

10

a. Calculate the payback period of each investment

b. Which investments does the company accept if the cut-off payback period is three years? Four years?

c. If the company invests by choosing projects with the shortest payback period, which project would it invest in?

d. If the company uses discounted payback with a 12% discount rate and a 4-year cut-off period, which projects will it accept?

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