Problem:
The athletic department at Big State University is considering two different facility renovation projects on their campus, both with 5-year life expectancies. Utilizing the payback period approach, determine the payback period and the correct recommendation for what the athletic department should decide regarding the potential renovation project. Project A Project B Year Cash Flow Cash Flow 0 ($750,000) ($400,000) 1 $200,000 $50,000 2 175,000 60,000 3 200,000 75,000 4 60,000 175,000 5 50,000 150,000 Question 5 Select one:
A. Big State would not be able to pay off Project A within the 5 year time frame. However, the payback period for Project B is 4 years and 14 weeks for Project B. The athletic department should only take on Project B.
B. The payback period is 4 years and 35 weeks for Project A and 4 years and 12 weeks for Project B. The athletic department should accept both projects.
C. Neither capital project should be accepted by Big State as the athletic department would not be able to pay back either within the five year time frame.
D. The payback period is 3 years and 52 weeks for Project A and 4 years and 23 weeks for Project B.