Bill Williams has the opportunity to invest in project A that costs $8,400 today and promises to pay annual cash flows of $2,100 , $2,600?, $2,600 ,$2,000 and $1,700 over the next 5 years. ? Or, Bill can invest $8,400 in project B that promises to pay annual cash flows of $1,400?, $1,400?, $1,400?, $3,400 and $3,900 over the next 5 years. ?(?Hint: For mixed stream cash? inflows, calculate cumulative cash inflows on a?year-to-year basis until the initial investment is recovered.?)
a. How long will it take for Bill to recoup his initial investment in project? A?
b. How long will it take for Bill to recoup his initial investment in project? B?
c. Using the payback? period, which project should Bill? choose?
d. Do you see any problems with his? choice?