Question

Romanos Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $8,000,000 for the year. Lyssa Bart​,

staff analyst at Romanos​, is preparing an analysis of the three projects under consideration by Chester Romanos​, the​ company's owner.

	Project A	Project B	Project B
Projected cash outflow
Net Intial Investment	$                4,000,000.00	$                3,000,000.00	$    4,000,000.00
Projected cash inflow
Year 1	$                2,550,000.00	$                    800,000.00	$    2,100,000.00
Year 2	$                2,550,000.00	$                1,600,000.00	$    2,100,000.00
Year 3	$                2,550,000.00	$                1,000,000.00	$          50,000.00
Year 4	$                2,550,000.00		$          25,000.00
Required Rate of Return	6%	6%	6%

Requirement 1. Because the​ company's cash is​ limited, Romanos thinks the payback method should be used to choose between the capital budgeting projects.

Calculate the payback period for each of the three projects. Ignore income taxes. ​(Round your answers to two decimal​ places.)

Project A	???	years
Project B	???	years
Project C	???	years

Using the payback​ method, which​ project(s) should Romanos choose?

Answer 1