Question

​(Payback and discounted payback period​ calculations) The​ Bar-None Manufacturing Co. manufactures fence panels used in cattle feed lots throughout the Midwest. ​ Bar-None's management is considering three investment projects for next year but​ doesn't want to make any investment that requires more than three years to recover the​ firm's initial investment. The cash flows for the three projects​ (Project A, Project​B, and Project​ C) are as​ follows:

Year	Project A	Project B	Project C
0	$(950)	$(9,000)	$(6,500)
1	530	6,000	800
2	250	3,500	800
3	190	3,500	3,000
4	90	3,500	3,000
5	450	3,500	3,000

a.) Given​ Bar-None's three-year payback​ period, which of the projects will qualify for​ acceptance?

b.) Rank the three projects using their payback period. Which project looks the best using this​ criterion? Do you agree with this​ ranking? Why or why​ not?

c.) If​ Bar-None uses a discount rate of 9.2 percent to analyze​ projects, what is the discounted payback period for each of the three​ projects? If the firm still maintains its​ three-year payback policy for the discounted​ payback, which projects should the firm​ undertake?

Answer 1