Payback Method
A construction company has two projects for consideration: Project A and Project B. Project A requires an initial investment of $40,000 and is expected to generate annual net cashflows of 10,000. Project B requires an initial investment of $30,000 and is expected to save operating costs of $5,000 in the first year, $10,000 in the second year, $10,000 in the third year, and $15,000 in the fourth year. If the company is really concerned about the cashflows and would like to use payback method to select a better project, which project should be selected?
For Project A:
Payback Period =
For Project B: