Survivor, Inc. is considering investing in two independent projects: a modified fishing vessel and a bear trap. The cash outlay for the fishing vessel is $45,000, and for the bear trap it is $35,000. Each piece of equipment has an estimated life of 5 years. The expected annual after-tax cash flow (for each of the five years) to be provided by the fishing vessel is $12,500, and for the bear trap it is $8,500. The firm’s required rate of return is 8%.
Calculate the Payback Period for each project.
Calculate the Discounted Payback Period for each project, and indicate which project(s) should be accepted.