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2. Our company wants to determine which of two project alternatives is the more attractive
investment opportunity by using a payback period approach. We have calculated the
initial investment cost of the two projects and the expected revenues they should generate
for us (see Table 3.5). Which project should we invest in?
3. Assume that you are considering whether or not to invest in a project that will cost $100,000
in initial investment. Your company requires a rate of return of 10%, and you expect
inflation to remain relatively constant at 4%.
You anticipate a useful life of four years for the project and have projected future cash flows as
follows:
Year 1: $20,000
Year 2: $50,000
Year 3: $50,000
Year 4: $25,000
4.Suppose we require a 12.5 % return on investments, and we have a project opportunity that
will cost an initial investment of $30,000 with a promised return per year of $10,000. Apply the
payback period to discounted cash flow and undiscounted cash flows and compare the results.
5. A company has four project investment alternatives. The required rate of return on projects is
20%, and inflation is projected to remain at 3% into the foreseeable future. The pertinent
information about each alternative is listed in the following chart:
Which Project should be the firm’s first priority?