PROBLEMS 1 Two new Internet site projects are proposed to a

PROBLEMS 1. Two new Internet site projects are proposed to a young start // up company. Project A will cost $250,000 to implement and is expected to have annual net cash flows of $75,000. Project B will cost $150,000 to implement and should generate annual net cash flows of $52.000. The company is very concerned about their cash flow. Using the payback period, which project is better, from a cash flow standpoint? 2. Sean, a new graduate at a telecommunications firm, faces

Solution

Given

Project A initial cost is $250,000 and will have a cash flow of $75,000 the formula to find pay back period is

Total initial investment / cash flow per annum= 250000/75000=3 years

Project B has initial investment of $150000

Cash flows 52000

Then payback period is 150000/52000 = 2.88 yrs (approx)