Your selection committee is debating between two projects. Project A has a payback period of 20 months. Project B has a cost of $150,000, with expected cash inflows of $50,000 the first year and $25,000 per quarter after that. Which project should you recommend?
A.
Either Project A or Project B, because the payback periods are equal
B.
Project A, because Project B’s payback period is 24 months
C.
Project A, because Project B’s payback period is 20 months
D.
Project A, because Project B’s payback period is 21 months
Explanation:
Project B has a payback period of 24 months; $50,000 is received in the first 12 months, with another $100,000 coming in over next 12 months.