Two projects are being considered for selection.

• Project A will cost $300,000 to implement and is expected to have annual net cash inflow of $50,000.
• Project B will cost $1,200,000 to implement and should generate annual net cash inflow of $200,000.

The Project A company is very concerned about their cash flow. Project B is using new technology that should give the company a market advantage if successful, whereas Project A is using proven technologies.

Using the Pay Back method of project selection, which project is the better selection, given the information above? Show your calculations and explain your reason for selecting either Project A or Project B.

When determining the Estimate-at-Completion (EAC) with atypical variances, the following formula is used:

1. EAC = AC + (BAC EV)
2. EAC = BAC/CPI
3. EAC = BAC AC
4. EAC = PV + (CPI EV)